Ethical And Professional Standards - Ethical And Professional Standards Section 2

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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?

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

  • Option : A
  • Explanation : 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.
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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:

  • Option : B
  • Explanation : 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.
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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:

  • Option : C
  • Explanation : 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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