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

36 BU Airlines has taken INR 1.1 billion of debt and is unable to service it. The stock prices have been falling and some investors are accumulating the stock in the hope it will rise soon. Most investors are unaware of the health of the lossmaking airline. The research team at Emitus Investment Management, covers the stock and wants to publish an adverse opinion on the stock. The firm‟s policy does not permit dissemination of a negative opinion about a client, as it was the underwriter when BU went public two years ago. The best course of action is:

The recommended course of action would be to put BU Airlines on a restricted list and disseminate only factual data. Refer to Standard I(B) Independence and Objectivity.

37 Lunu Mbasa is an independent analyst who writes a popular financial blog on stock selection. He is hired by an investor relations firm to publish a research report on FKart, an online lifestyle firm, on his blog. Mbasa will be paid a fixed fee plus a monthly voucher that can be redeemed on the site if any investor buys the stock based on his report. There is no disclaimer about the arrangement in his blog post. This arrangement is least likely a violation of:

Refer Standard I(B) Independence and Objectivity and VI(A) Disclosure of Conflicts.

38 Pratik Mathew, a candidate registered for the Level II exam copies important concepts ad formulas from difficult topics such as Economics, Quantitative Methods and Derivatives daily from the CFA Institute curriculum and posts them on his Facebook page. He had paid for the online version of the curriculum. He does not attribute the source of his post. Mathew is most likely in violation of:

Refer Standard I(C) Misrepresentation.

39 Inventure Advisors hires ten research analysts at the entry level from a reputed management school. One of the recruits, Smith, has served a three-day jail term after being convicted for drug abuse, while still in school, that was not disclosed at the time of recruitment. He has since reformed after being to a rehabilitation center. However, Smith had provided references, who would have acknowledged this incident if the firm had done the background check. Who is most likely in violation of Standard I(V) Misconduct?

It is recommended that firms check reference of potential employees.

40 Sanjay Babu is a research analyst at Waterhouse Investment Management firm. He covers Sat Corp, a technology services firm. Babu, during a visit to the firm to interview the business heads about future growth prospects, overhears a conversation between the CFO and VP-HR in the adjoining room, that the market regulator of India is privately interrogating the CEO‟s involvement in an insider trading case of Sat Corp. What is the best course of action for Babu to take?

C is incorrect because when public dissemination is not possible, member must communicate only to the designated supervisory or compliance personnel and not to their teams. Refer to Standard II(A) Material Nonpublic Information.

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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

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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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