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Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 2

26 Greg Lou has been asked by his firm, Binkley Investment Management, to find an adviser for one of its funds which invests in derivatives and complex securities. Lou selects 12 firms based on their annual total return performance and finalizes on the adviser with the highest annual total return. Which CFA Institute Standards of Professional Conduct did Lou violate?

Lou violated Standard V(A) Diligence and Reasonable Basis by not conducting sufficient review of potential firms.

27 Samina Haq a CFA candidate, works for Superior Trust Company. While reviewing the performance of one of the trust funds, she finds out that the trust fund has on an average performed at 5% for the last three years yet the brochure of her fund advertises an annual compound growth rate of 20%, which happened only in the past year. It also boasts of a consistent increment in the investment value above the entire market which also took place during last year. Haq‟s highest priority in avoiding a violation of the CFA Institute Standards of Professional Conduct is to:

According to Standard III(D) Performance Presentation Haq needs to correct the calculation and length of time specifying the performance of her trust fund.

28 Weinberg Inc., a global asset management company, has a large position in Wessner Pharma. The trading volume of this stock is low. In order to boost the liquidity of the stock, multiple trading desks at Weinburg start buying and selling Wessner shares from each other. The CFA Institute Standard most likely violated by Weinberg is:

Refer to Standard II(B) Market Manipulation. Weinberg created an appearance of greater liquidity of stock through its trading strategy and was able to manipulate the market.

29 Norman Bates, CFA works as an analyst for Angle Investments. She has been asked to cover investments in the Asian markets for their high rate of return. The trip is sponsored by Sia, an investment and brokerage firm. Bates knows that Sia charges commission at a higher rate than the other brokerage facilities used by her firm. Nevertheless she convinces the trading desk at Angle to give more business to Sia so she can take the trip. Bates is most likely violating the CFA Institute Standard of Professional Conduct related to:

Bates is violating Standard III(A) Loyalty, Prudence and Care. He should have weighed the benefits of the trip against the commission charged by Sia. He should have also determined whether best execution and prices could be received from Sia.

30 Mary Burnette supervises a team of research analysts at Brigham Money Managers. One of her team member Siri Desai, an auto analyst, follows various websites and blogs for research purposes on the auto industry. Desai while browsing through the internet comes across a report by an independent research analyst on the hybrid car introduced by Koyota Motor Company. Based on that report she gives a recommendation of „buy‟ in her research report without giving reference of her source. Burnette is under a deadline by her firm to compile the reports and to implement the recommendations. She does not review Desai‟s work and sets up a meeting with the portfolio managers to discuss the execution strategy based on the research reports submitted by her team. Burnette least likely violated the CFA Institute Standard of:

Burnette has violated Standard IV(C) Responsibilities of Supervisors by neglecting to review thoroughly Desai’s report and her recommendations. It is Burnette’s responsibility to set up appropriate procedures; these are documented, communicated and followed by the personnel working for her. She has also violated Standard of Diligence and Reasonable basis.

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Market Manipulation

Market manipulation involves practices that distort prices, trading volume, or market information with the intent to mislead market participants.

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Question:

Cora Bentley works for an investment counseling firm. She is approached by a new client Sue Grey for financial advice. Bentley very enthusiastically explains to her how she…

A. No.
B. Yes, Bentley should have explained her qualifications, her education, and experience and the meaning of her CFA Designation.
C. Yes, Bentley should have determined Grey‟s needs, objectives, tolerance and risk before making any recommendations.

Correct answer: C

Explanation:

Bentley should determine whether the investment is suitable to the client’s financial situation. She should make an inquiry into the risk and return objectives of the client before…

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