Question: James Arbaaz works for an investment advisory firm, Leon Investments. His friend, Shahzad, recently asked him for some investment recommendations. Arbaaz analyzed Shahzad's portfolio over a weekend and suggested some changes.
While he did not accept any remuneration, Shahzad promised him some gifts if his portfolio "performed well." Arbaaz did not inform his employer since he thought he was helping a friend and in any case, the Shahzad's account was extremely small and there were no financial payments.
Arbaaz has:
Select an Answer: not violated Loyalty because there was no financial remuneration. violated Loyalty. not violated Loyalty because Shahzad's account was too small to be deemed lost business for Leon Investments. not violated Loyalty because Arbaaz is free to do what he wants on his time as long as it doesn't affect Leon Investments.
Rationale:
While Arbaaz did not receive any monetary compensation, there is a possibility of gifts in the future. Loyalty applies even when there is no actual receipt of compensation; what is important is the possibility of future payments in cash or kind. By not obtaining a written permission from his employer before advising Shahzad, Arbaaz violated this standard.
2023-09-22
Question: Generally, the ultimate responsibility to ensure compliance with CFA Institute Code rests with:
Select an Answer: all of these answers. the CEO of the firm. the highest ranking CFA Institute member of the firm. every member of the firm.
Rationale:
While every member must always comply with the Code, it makes sense that, the ultimate responsibility rests with the senior-most CFA Institute member of the firm. That member must make sure that the firm's environment is in compliance with the Code.
2023-09-21
Question: Tessmer is a hard-working employee in the sales department of a large bank. In this capacity, Tessmer is allowed to have an expense account to be used to entertain clients and cover business expenses.
Over the past three months, Tessmer's expenses have almost doubled, a large part coming from expenses attributed to "business expense."
While his manager, Janus Lace, is suspicious about this and believes that Tessmer is using the account for personal expenses, he has no proof of this. All of Tessmer's reimbursement bills appear to be in order.
Tessmer has:
Select an Answer: violated CFA Institute standard on Reasonable Costs. violated CFA Institute standard on Professional Misrepresentation. violated CFA Institute standard on Misconduct. not violated any CFA Institute standard.
Rationale:
There is no evidence that Tessmer is misusing his expense account. The increase may simply be due to an increased professional activity. There is a chance that Tessmer is altering his bills but that needs to be investigated in some depth by Janus Lace, with a detailed examination of the results accruing from increased expenses. If Tessmer is found guilty of falsifying records, he would be in violation of Misconduct. Without such evidence, charges of violation cannot be leveled against anyone.
2023-09-20
Vignette: Neda Non, CEO, is interviewing Roland Sabosky for an associate position in her company. Neda tests Sabosky on not only his soft skills but also his technical skills. There are many questions on economic trends and fundamental analysis coupled with a few numerical questions. Neda mentions that U.S. Treasury Inflation-Protected Securities (TIPS) have neither inflation risk nor credit risk and also that if inflation rises, the yields on TIPS will fall. Roland replies by saying that he agrees with everything that Neda has said.
Neda continues her questioning and asks Roland that in the event that country X has a persistent current account deficit, and if country X's currency is strong during this time period, then which approach to forecasting currency best explains this. Roland thinks a little about the same and then gives the answer. Impressed by his answer Neda writes some data on a piece of paper and asks Roland to calculate the short-term interest rate target by using the Taylor approach. The data on the paper is as follows:
Neda now begins asking Roland about economic trends and returns, especially the difference in stock returns between the early expansion phase and the later stages of expansion. Roland mentions that there isn't any difference and it depends from company to company. Neda further asks Roland to give his views on the characteristics of the checklist approach as used in economic forecasting. Roland says that it is flexible, has limited complexity, but is time consuming and objective. Neda nods her head and asks Roland that if he were a cash manager who believed the economy would have a robust recovery what would he do?
Roland replies to the question in an amicable manner trying to convince Neda of his answer and reasoning but Neda does not seem to agree with him. The interview finishes and a few days later Roland gets his offer letter.
Question: Has Roland listed the characteristics of a checklist approach of economic forecasting correctly?
Select an Answer: No, it is very complex. No, it is not flexible. No, the checklist approach is subjective not objective. Yes, he has.
Rationale:
A checklist approach is subjective which is a major disadvantage of using it.
2023-09-19
Question: A CFA Institute member has violated one of CFA Institute Code of Ethics' Standards. However, according to the laws of the country governing his behavior, he has done nothing wrong. Therefore:
Select an Answer: none of these answers. CFA Institute cannot take disciplinary action against him. CFA Institute can take disciplinary action against him. there is no violation of the Code since local laws were adhered to.
Rationale:
A member must always abide by CFA Institute Code, unless the local laws in any given case are stricter, in which case, the stricter standard applies.
Knowledge of the Law. Hence, every violation of the Code of Ethics is always subject to disciplinary action.
