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Certified Financial Planner > CFP Book Volume I > Flashcards

CFP Book Volume I Flashcards

1
Q

Six Principles of CFP Code of Ethics

A
  1. Act with honesty, integrity, competence, and diligence.
  2. Act in the client’s best interests.
  3. Exercise due care.
  4. Avoid or disclose and manage conflicts of interest.
  5. Maintain the confidentiality and protect the privacy of client information.
  6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.
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2
Q

CFP Board Standards of Conduct

A

A. Duties Owed to Clients

B. Financial Planning and Application of the Practice Standards for the Financial Planning Process

C. Practice Standards for the Financial Planning Process

D. Duties Owed to Firms and Subordinates

E. Duties Owed to CFP® Board

F. Prohibition on Circumvention

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3
Q

Integrity

A

A CFP® professional must perform Professional Services with integrity. Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage. Allowance may be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of principle.

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4
Q

What are the three fiduciary duties owed by the CFP professional?

A

Duty of Loyalty

Duty of Care

Duty to Follow Client Instruction

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5
Q

Financial Advice

A reference to “Financial Advice” is to Financial Advice that DOES NOT require Financial Planning and a reference to “Financial Planning” is to Financial Advice that DOES require Financial Planning

A

A. Communication that, based on its content, context and presentation, would reasonably be viewed as recommendation that the Client take or refrain from taking a particular course of action with respect to:

The Development or implementation of a financial plan

The value or or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets

Investment policies or strategies, portfolio composition, the management of Financial Assets or other financial matters

The selection and retention of other persons to provide financial or Professional Services to the Client

B. The exercise of discretionary authority over the Financial Assets of a Client

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6
Q

Financial Planning

A reference to “Financial Advice” is to Financial Advice that DOES NOT require Financial Planning and a reference to “Financial Planning” is to Financial Advice that DOES require Financial Planning

A

A collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances

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7
Q

List the Seven Step Financial Planning Process

A

Understanding the Client’s Personal & Financial Circumstances

Identifying and Selecting Goals

Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action

Developing the Financial Planning Recommendation(s)

Presenting the Financial Planning Recommendation(s)

Implementing the Financial Planning Recommendation(s)

Monitoring Progress and Updating

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8
Q

What are the two phases of the business cycle?

A

Expansion

Contraction

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9
Q

Expansion

A

Characterized by increasing Gross Domestic Product & decreasing unemployment rate

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10
Q

Contraction

A

Characterized by decreasing GDP & increasing unemployment

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11
Q

What are the two phases in the business cycle?

A

Peak

Trough

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12
Q

Peak

A

Characterized by very high GDP & peak employment (very low unemployment)

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13
Q

Trough

A

Characterized by very low GDP (very typically negative GDP) & high and widespread unemployment

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14
Q

Define GDP

A

The market value of the goods and services produced by labour and property within the borders of a country

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15
Q

Define Recession

A

Two consecutive quarters of negative GDP growth.

Not every contraction is a recession, however every recession is a contraction

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16
Q

Real GDP Includes:

A

Market Value of all final goods and services produced within an economy

Income earned by foreigners working in the United States

Profits that foreign companies earn in the United States

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17
Q

Real GDP Excludes:

A

Imports

Inflation

Transactions where money changes hands but no new goods or services are produced

Income of US citizens working abroad

Profits earned by US companies in foreign countries

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18
Q

GDP Formula

A

Y = C + I + G + (X - M)

C = Consumer spending

I = Investment made by industry

G = Government spending

X - M = Excess of exports over imports

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19
Q

What is the basic law that determines the price of a good or service

A

The quantity supplied of goods and services relative to the quantity demanded of those goods and services determines the price.

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20
Q

Substitutes

A

An increase in the price of one will cause an increase in the demand for another

If the price of oil, gas or propane sudden;y rose sharply, the demand for firewood would most likely increase

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21
Q

Compliments

A

Products that are usually consumed jointly. They are related such that a decrease in the price of one will cause an increase demand for the other

When peanut butter goes on sale, the demand for jelly will increase

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22
Q

Marginal Utility

A

The additional benefit (utility) received from the consumption of an additional unit of a good

As the rate of consumption increases, the marginal utility derived from consuming additional units will decline, and this is known as Diminishing Marginal Utility

23
Q
  1. What does fiscal policy refer to
A

Fiscal policy refers to the taxation, expenditures, and debt management by the federal government and how these interventions influence the economy

24
Q

How is Deficit Spending Financed?

A

By the issue of US Treasury Securities

25
Q

Monetary Policy

A

Monetary policy controls the money supply, influences lending rates, may slow down or stimulate the economy

Controlled by the Federal Reserve Bank

26
Q

The three primary tools of the Federal Reserve

A

Discount Rate

Reserve Requirement

Open Market Activities

27
Q

Discount Rate

A

The rate at which member banks borrow from the government

28
Q

Reserve Requirement

A

The percentage of deposits that must be held pn reserve

29
Q

Open Market Activities

A

The federal reserve buys and sells securities in the open market

30
Q

Personal Balance Sheet Items are reported at:

A

Fair Market Value

31
Q

Corporate Balance Sheet Items are reported at:

A

Lower of Cost or FMV

32
Q

Liquidity Ratios

A

Used to determine the ability to meet short term obligations

33
Q

Activity Ratios

A

Used to determine the relative efficiency of financial management

34
Q

Profitability Ratios

A

Used to measure relative profitability

35
Q

Debt Ratios

A

Used to determine the ability to meet long term obligations

36
Q

Current Ratio

A

Current Assets / Current Liabilities

37
Q

Quick Ratio

A

Current Assets - Inventories / Current Liabilities

38
Q

Working Capital

A

Current Assets - Current Liabilities

39
Q

Inventory Turnover

A

COGS / Average Inventory

41
Q

Days to Sell Inventory

A

365 / Inventory Turnover

42
Q

Accounts Receivable Turnover

A

Sales / Avg Accounts Receivable

43
Q

Receivable Collection Period

A

365 / Accounts Receivable Turnover

44
Q

Gross Profit Margin

A

Gross Profit / Sales

45
Q

Operating Profit Margin

A

Operating Income / Revenue

46
Q

Return on Equity

A

EAT / Equity

47
Q

Return on Assets

A

Earnings After Taxes / Total Assets

48
Q

Debt to Equity

A

Total Long Term Debt / Equity

49
Q

Times Interest Earned

A

EBIT / Interest Expense

Certified Financial Planner (35 decks)

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