Guidance for Standards I–VII

Question 1

Standard I

Answer 1

Professionalism

Question 2

Standard I(A)

Answer 2

Knowledge of the Law

Question 3

Members and candidates are responsible for violations in which they _____ participate or assist

Answer 3

knowingly

Question 4

The first step should be to attempt to stop the illegal and/or unethical behavior by _________ . If this attempt is unsuccessful, then members and candidates have a responsibility to step away and dissociate from the activity

Answer 4

bringing it to the attention of the employer through a supervisor or the firm’s compliance department

Question 5

Member resides in MS
country, does business in
LS country; MS law applies,
but it states that law of
locality where business is
conducted governs.

Member must adhere to _____

Answer 5

the Code and Standards

Question 6

Standard I(B)

Answer 6

Independence and Objectivity

Question 7

If the firm is unwilling to permit dissemination of

adverse opinions about a corporate client, members and candidates should ______________

Answer 7

Encourage the firm to remove the controversial company from the research
universe and put it on a restricted list so that the firm disseminates only factual information about the company

Question 8

Standard I(C)

Answer 8

Misrepresentation

Question 9

Standard I(D)

Answer 9

Misconduct

Question 10

Standard II

Answer 10

Integrity of Capital Markets

Question 11

“mosaic theory” definition

Answer 11

financial analysts are free to act on this collection, or mosaic, of information
without risking violation.

Question 12

Standard II(A)

Answer 12

Material Nonpublic Information

Question 13

Standard II(B)

Answer 13

Market Manipulation

Question 14

Market manipulation includes (2)

Answer 14

(1) the dissemination of false or misleading information and (2) transactions that deceive or would be likely to mislead market participants
by distorting the price-setting mechanism of financial instruments

Question 15

Standard III

Answer 15

Duties to Clients

Question 16

Standard III(A)

Answer 16

Loyalty, Prudence, and Care

Question 17

Standard III(A) \_\_\_\_ render all members and candidates
fiduciaries

Answer 17

does not

Question 18

Conflicts may arise when an investment manager uses client brokerage
to purchase research services, a practice commonly called _______

Answer 18

“soft dollars” or “soft commissions.”

Question 19

Standard III(B)

Answer 19

Fair Dealing

Question 20

Standard III(B) covers conduct in two broadly defined categories — ______ and ______

Answer 20

investment

recommendations, investment action

Question 21

Standard III(C)

Answer 21

Suitability

Question 22

Standard III(D)

Answer 22

Performance Presentation

Question 23

For members and candidates who are showing the performance history of the assets
they manage, compliance with __________ is the best method to meet their
obligations under Standard III(D)

Answer 23

the GIPS standards

Question 24

Standard III(E)

Answer 24

Preservation of Confidentiality

Question 25

Standard IV

Answer 25

Duties to employers

Question 26

Standard IV(A)

Answer 26

Loyalty to employers

Question 27

Standard IV(B)

Answer 27

Additional Compensation Arrangements

Question 28

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 _______

Answer 28

they obtain written consent from ALL parties involved.

Question 29

Standard IV(C)

Answer 29

Responsibilities of Supervisors

Question 30

Standard V

Answer 30

Investment Analysis, Recommendations, And Actions

Question 31

Standard V(A)

Answer 31

Diligence and Reasonable Basis

Question 32

Standard V(B)

Answer 32

Communication with Clients and Prospective

Clients

Question 33

Standard V(C)

Answer 33

Record Retention

Question 34

Standard VI

Answer 34

Conflicts of Interest

Question 35

Standard VI(A)

Answer 35

Disclosure of Conflicts

Question 36

The most prevalent conflict requiring disclosure under Standard VI(A) is

Answer 36

a member’s
or candidate’s ownership of stock in companies that he or she recommends to clients
or that clients hold.

Question 37

Standard VI(B)

Answer 37

Priority of Transactions

Question 38

Standard VI(C)

Answer 38

Referral Fees

Question 39

Standard VII

Answer 39

Responsabilities as a CFA Institute Member or CFA Candidate

Question 40

Standard VII(A)

Answer 40

Conduct as Participants in CFA Institute Programs

Question 41

Standard VII(B)

Answer 41

Reference to CFA Institute, the CFA Designation,

and the CFA Program

Question 42

Which one of the following actions will help to ensure the fair treatment of
brokerage firm clients when a new investment
recommendation is made?

A Informing all people in the firm in advance that a recommendation is to be
disseminated.
B Distributing recommendations to institutional clients prior to individual
accounts.
C Minimizing the time between the decision and the dissemination of a
recommendation.

Answer 42

C

Question 43

11 The mosaic theory holds that an analyst:

A Violates the Code and Standards if the analyst fails to have knowledge of
and comply with applicable laws.
B Can use material public information and nonmaterial nonpublic information
in the analyst’s analysis.
C Should use all available and relevant information in support of an investment recommendation

Answer 43

B

Question 44

Paper was recently terminated as one of a team of five managers of an equity
fund. The fund had two value-focused managers and terminated one of them
to reduce costs. In a letter sent to prospective employers, Paper presents, with
written permission of the firm, the performance history of the fund to demonstrate his past success.

A Paper did not violate the Code and Standards.
B Paper violated the Code and Standards by claiming the performance of the
entire fund as his own.
C Paper violated the Code and Standards by including the historical results of
his prior employer.

Answer 44

B