Ethics

Question 1

What is wrong with the following statement: “As I passed the CFA examinations in three consecutive years, I am highly qualified to manage client funds.”

Answer 1

Statements which are factual with respect to passing the exams are acceptable, but to claim superiority in doing so is unacceptable.

Question 2

Who does the GIPS standards primarily benefit?

Answer 2

prospective and current clients of investment management firms and the firms themselves.

Question 3

What does GIPS stand for?

Answer 3

Global Investment Performance Standards

Question 4

What is wrong with the following statement: “Verification has been a requirement since January 1, 2000.”

Answer 4

Verification is recommended but not required.

Question 5

True or False: Members may not copy or use graphs without stating the sources but members may orally, for example in a group meeting, without acknowledgment, use excerpts from articles or reports prepared by others.

Answer 5

False: Standard I(C) prohibits plagiarism, wither it is written or oral.

Question 6

True or False: Disclosure of a relationship in the context of issuing research reports, is required regardless of whether a recommendation is made.

Answer 6

True

Question 7

What is the purpose of a firewall (non-technical).

Answer 7

Firewalls are intended to block the dissemination of material nonpublic information. Physically separating departments and their files as well as monitoring employees working for more than one department at any one time are both appropriate steps in maintaining the establishment of a firewall.

Question 8

True or False: Remuneration levels of investment professionals is one of the concepts covered by the CFA Institute Cod of Ethics

Answer 8

False

Question 9

A CFA accumulates and analyzes serveral pieces of nonpublic information through industry contacts. Each piece of information is non material, but correctly deduces that the earnings of one of the firms under his coverage would unexpectedly decline. According to the standards the CFA is allowed to use the information to make investment recommendations and decisions, why?

Answer 9

This is an example of the mosaic theory. It is legitimate to employ an educated deduction over pieces of ‘nonmaterial’ nonpublic information and to arrive at an investment recommendation.