1 - Code of Ethics and Standards of Professional Conduct

Question 1

Code of Ethics Component 1: “Act with integrity, competence….”

Answer 1

Act with integrity, competence, diligence, respect and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.

Question 2

Code of Ethics Component 2: “Place the integrity of the investment profession….”

Answer 2

Place the integrity of the investment profession and the interests of clients above their own personal interests.

Question 3

Code of Ethics Component 3: “Use reasonable care and exercise ….

Answer 3

Use reasonable care and exercise independent professional judgement when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.

Question 4

Code of Ethics Component 4: “Practice and encourage…”

Answer 4

Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.

Question 5

Code of Ethics Component 5: “Promote the integrity…”

Answer 5

Promote the integrity of and uphold the rules governing capital markets.

Question 6

Code of Ethics Component 6: “Maintain and improve…”

Answer 6

Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.

Question 7

State the Standard of Professional Conduct I. Professionalism, A. Knowledge of the Law.

Answer 7

Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations.

Question 8

State the Standard of Professional Conduct I. Professionalism, B. Independence and Objectivity.

Answer 8

Members and Candidates must use reasonable care and judgement to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept and gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

Question 9

State the Standard of Professional Conduct I. Professionalism, C. Misrepresentation.

Answer 9

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Question 10

State the Standard of Professional Conduct I. Professionalism, D. Misconduct.

Answer 10

Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

Question 11

State the Standard of Professional Conduct II. Integrity of Capital Markets A. Material Nonpublic Information.

Answer 11

Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Question 12

State the Standard of Professional Conduct II. Integrity of Capital Markets B. Market Manipulation.

Answer 12

Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

Question 13

State the Standard of Professional Conduct III. Duties to Clients A. Loyalty, Prudence, and Care.

Answer 13

Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgement. Members and Candidates must act for the benefit of their clients and place their clients’ interests before their employer’s or their own interests.

Question 14

State the Standard of Professional Conduct III. Duties to Clients B. Fair Dealing.

Answer 14

Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities.

Question 15

State the Standard of Professional Conduct III. Duties to Clients C. Suitability 1. When Members and Candidates are in an advisory relationship with a client they must (a.) “Make a reasonable inquiry…”

Answer 15

a. Make a reasonable inquiry into a client’s or prospective client’s investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly.

Question 16

State the Standard of Professional Conduct III. Duties to Clients C. Suitability 1. When Members and Candidates are in an advisory relationship with a client they must (b.) “Determine that an investment…”

Answer 16

b. Determine that an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment action.

Question 17

State the Standard of Professional Conduct III. Duties to Clients C. Suitability 1. When Members and Candidates are in an advisory relationship with a client they must (c.) “Judge the suitability…”

Answer 17

c. Judge the suitability of investments in the context of the client’s total portfolio.

Question 18

State the Standard of Professional Conduct III. Duties to Clients C. Suitability 2. “When Members and Candidates are responsible for managing…”

Answer 18

2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the states objectives and constraints of the portfolio.

Question 19

State the Standard of Professional Conduct III. Duties to Clients D. Performance Presentation.

Answer 19

When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete.

Question 20

State the Standard of Professional Conduct III. Duties to Clients E. Preservation of Confidentiality. Members and Candidates must keep information about current, former, and prospective clients confidential unless: (3)

Answer 20

1. The information concerns illegal activities on the part of the client or prospective client, 2. Disclosure is required by law, or 3. The client or prospective client permits disclosure of the information.

Question 21

State the Standard of Professional Conduct IV. Duties to Employers A. Loyalty.

Answer 21

In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer.

Question 22

State the Standard of Professional Conduct IV. Duties to Employers B. Additional Compensation Arrangements.

Answer 22

Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer’s interest unless they obtain written consent from all parties involved.

Question 23

State the Standard of Professional Conduct IV. Duties to Employers C. Responsibilities of Supervisors.

Answer 23

Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority.

Question 24

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. A. Diligence and Reasonable Basis. (1/2) “Members and Candidates must…”

Answer 24

1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions.l

Question 25

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. A. Diligence and Reasonable Basis. (2/2) “Members and Candidates must…”

Answer 25

2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action.

Question 26

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. B. Communication with Clients and Prospective Clients. (1/3) “Members and Candidates must…”

Answer 26

1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes.

Question 27

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. B. Communication with Clients and Prospective Clients. (2/3) “Members and Candidates must…”

Answer 27

2. Use reasonable judgement in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients.

Question 28

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. B. Communication with Clients and Prospective Clients. (3/3) “Members and Candidates must…”

Answer 28

3. Distinguish between fact and opinion in the presentation of investment analysis and recommendations.

Question 29

State the Standard of Professional Conduct V. Investment Analysis, Recommendations, and Actions. C. Record Retention.

Answer 29

Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients.

Question 30

State the Standard of Professional Conduct VI. Conflicts of Interest A. Disclosure of Conflicts

Answer 30

Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, end employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively.

Question 31

State the Standard of Professional Conduct VI. Conflicts of Interest B. Priority of Transactions.

Answer 31

Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.

Question 32

State the Standard of Professional Conduct VI. Conflicts of Interest C. Referral Fees.

Answer 32

Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to other for the recommendation of products or services.

Question 33

State the Standard of Professional Conduct VII. Responsibilities as a CFA Institute Member or CFA Candidate A. Conduct as Members and Candidates in the CFA Program.

Answer 33

Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation orthe integrity, validity, or security of the CFA examinations.

Question 34

State the Standard of Professional Conduct VII. Responsibilities as a CFA Institute Member or CFA Candidate B. Reference to CFA Institute, the CFA designation, and the CFA Program.

Answer 34

When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA program.