Kaplan Mock 1 Flashcards
What is the requirement to send clients reports?
Brief communications are permitted (as brief as a list of recommended securities) as long as these recommendations are supported by appropriate background reports that can be made available to clients upon request.
Full Reports must be given upon request.
Non-Material Non-Public Information cannot be conveyed to?
Transactions specifically prohibits members and candidates from sharing non-public information, learned while performing their duties, with anyone who has an investment account for which the member is considered a beneficial owner (ie a family member such as a husband or wife)
Record Retention Responsibilities
The firm is generally responsible for record-keeping as required by Standard V(C) Record Retention.
Retaining records for at least 7 years is not required by the Standard but is recommended if no other regulation applies.
Records supporting investment actions and recommendations are the property of the firm.
A member cannot take these records or copies of them to a new employer without permission from the original employer.
Communication with Clients
you must disclose investments principles, identify relevant factors, and distinguish fact from opinion.
If you/your firm has material nonpublic information.
Restrict proprietary trading when in possession of material nonpublic information. Restricting client trades, however, could provide a signal to the market; the firm should continue to accept unsolicited transactions in the securities.
Soliciting former employer’s clients
In the absence of a no-compete agreement to the contrary, soliciting former clients is not necessarily a violation of the Standards
Reasonable and Adequate Basis
Recommendations must have a reasonable and adequate basis, supported by appropriate research and investigation
Quantitative rankings of securities are acceptable but the member must disclose to clients the basic process used to rank the securities.
You cannot rely on an opinion of another analyst even if they are national known.
If a Client calls and wants a trade on something that is not suitable to them based on their IPS you should first?
Discuss with the client whether this trade indicates a need to update the IPS.
Proxy Voting Policy
Must Vote in informed, responsible manner
Vote in best interests of client/beneficiary
Okay not to vote all proxies if costs-benefit analysis shows that voting all proxies does not benefit the client
Should disclose proxy voting policy to client (details not required)
Oversubscribed initial public offerings (IPOs)
This means when investors requested more shares than the issuer if offering.
The standards state that require that these members and candidates not accept shares.
Options/Warrants that have an average price that is lower than the exercise price.
not include these options/warrants because they are antidilutive.
You must always test options/warrants even if they cannot be exercised yet
Anti-Dilutive EPS
Convertible Bonds: Is Interest x (1 - tax rate) ÷ New Shares > Basic?
Convertible Preferred Shares: Is Preferred Divided ÷ New Shares > Basic?
Warrants/Options: Is the exercise price > Average Price?
You must always test options/warrants even if they cannot be exercised yet
Appreciation/Depreciation of Base Currency
Take the 2nd exchange rate and divided it by the 1st exchange rate, then subtract 1.
If the currencies are inverted use the 1/x key to revert them.
Input prices are “sticky.”
the Neo-Keynesian economists believe that the failure of input prices to adjust to restore equilibrium may prolong recessions, and government intervention to increase aggregate demand is appropriate.
Priori Probability
known in advance ahead of time based upon reasoning, without performing any experiments or making any estimates.
Determine whether monetary policy is expansionary or contractionary
Compare the central bank’s policy rate to the neutral interest rate.
The neutral interest rate is the sum of the real trend rate of GDP growth and the target inflation rate.
If the Policy rate < the Natural Interest Rate = Expansionary
IF the Policy Rate > the Natural Interest Rate = Contractionary
Construction Interest of an Asset
Will not be included as an interest expense, it might be part of COGS or as a depreciation expense later, but it cannot be an interest expense.
when they say asset its not only fixed asset it could be inventory.
Crowing Out Effect
Government borrowing competes with the private sector.
Primary factors influencing the price elasticity of demand for a product are
- product are the availability and closeness of substitute goods
- the proportion of income spent on the product
- the time since the price change.
Adjusting LIFO F/S to a FIFO Basis
LIFO Firms must report a LIFO reserve, which is at the cumulative difference between inventory and what it would have been using FIFO
FIFO Inventory = LIFO Inventory + LIFO Reserve
FIFO Cost of Sales – Change in LIFO Reserve
Some Analysis adjust the for the tax advantages of LIFO in an increasing price environment:
FIFO (R/E) = LIFO R/E + LIFO Reserve x (1 – Tax Rate)
FIFO Cash = LIFO Cash – LIFO Reserve x (1 – Tax Rate)
If Average Costs is used instead of LIFO
Average Cost will replace LIFO questions when compared to FIFO in questions.
If a public company reports a non-GAAP (non-IFRS) income measure, a reconciliation of that measure with the most comparable measure under the applicable accounting standards is required by:
both U.S. GAAP and IFRS require reconciliation with the comparable GAAP/IFRS measure.
Disinflation
Inflation rate = Percentage change of the price level.
The price level can be increasing but the inflation rate is decrease which is known as disinflation.
arbitrage-free one-year forward rate
( U.S. dollar (USD) and the Swiss franc (CHF) is 1.34 USD/CHF. The 1-year riskless interest rate in the United States is 3%, and the 1-year interest rate in Switzerland is 5%. The arbitrage-free 1-year USD/CHF forward rate is closest to:)
spot rate × (1 + i price currency) / (1 + i base currency)
Forward (d/f) = Spot (d/f) x (1 + domestic rate “d”) / (1 + foreign rate “f”)
1.34 × (1.03 / 1.05) = 1.3145 USD/CHF.
