Other Flashcards
- Standard II of the CFA Professional Code of Conduct deals with
a) honesty and integrity
b) loyalty to clients and the industry
c) diligence
d) professionalism
e) integrity of capital markets
f) all of the above
e
- Standard III of the CFA Professional Code of Conduct deals with
a) honesty and integrity
b) duties to clients
c) diligence
d) professionalism
e) integrity of capital markets
f) all of the above
b
- In Canada, federally chartered financial institutions and pension plans are regulated by the following institution(s) to ensure they are in sound financial condition and that they meet minimum plan funding requirements and that they are complying with the governing law and supervisory requirements:
a) Ontario Securities Commission (OSC)
b) Mutual Funds Dealer Association of Canada (MFDA)
c) Office of the Superintendent of Financial Institutions (OSFI)
d) Investment Industry Regulatory Organization of Canada (IIROC)
e) c and d
c
- Ethical behavior is:
a) a legal standard that is enforced by law
b) only based on a personal belief
c) characterized by honesty, fairness, and competence in all personal dealing
d) behaving according to a certain rules
e) something that can’t be explained
c
-
Misrepresentation is an act of dishonesty, resulting in loss of integrity and goodwill.
Which of the following would be considered to be an act of misrepresentation?
a) Assuming a rate of return on a client’s portfolio
b) Asking a client for personal information about a spouse
c) Telling a client that a mutual fund that you represent had the best returns of any fund in its class over the last year.
d) Using 6 pt. print to indicate poor performance returns
e) Suggesting to a client that you can outperform the market
f) All of the above
g) None of the above
g
- The term “soft dollars” refers to:
a) a direct payment to a broker to obtain inside information on a company
b) brokerage services, research, or information that can be obtained in exchange or in lieu of paid brokerage commissions
c) benefits that a client may look forward to by dealing with a company, such as free hockey tickets or free vacation
d) payments that are made in addition to fees to portfolio managers when they exceed the expected rate of return
b
- PIPEDA is a Canadian federal law that:
a) protects the privacy of Canadians
b) sets the rules for the collection, use, and disclosure of personal information in the course of commercial activities
c) allows individuals to access personal information held by an organization and to challenge its accuracy
d) Protects the independence of people living in Ontario
e) a, b, and c only
f) a and b only
e
- Of the following who would be considered to be an “insider” as stated by the Corporate Insolvency and Competition Law (Insider Trading Clause 54):
a) a person who is a member of the Board of Directors but not a member of management
b) the manager of a branch office
c) a third-party security analyst who is analyzing a company
d) a vice president in charge of IT
e) an administrative assistant in head office
f) an external auditor who is auditing the company’s financial statements
g) all of the above
g
- If you were a financial services representative and you were offered the opportunity by a mutual fund sales company to attend a “conference” in Las Vegas, and having all your expenses paid, what should determine your decision whether to go to the conference or not?
a) what show is being held in Vegas
b) whether your manager allows you to go
c) what would be expected of you by the fund company if you did choose to accept their offer
d) what the CFA Standards of Practice say that you should do in a case like this
e) who else is going
f) you would decline to go
c
- Which of the following is an indication of a poor ethical culture in a company (select the best answer from the following list):
a) additional charges applied to client accounts without explanation to the client
b) “churning” products
c) not promoting an employee who has a good performance record
d) non-disclosure of conflicts of interest
e) not paying salaries at the market rate
f) all of the above
g) a and b only
h) a, c, and d only
i) a, b, and d only
i
[topics we’ve covered in ethics]
- The minimum time period that should be used in promotional information to provide historical risk and rate of return performance is:
a) 1 year
b) 5 years
c) 10 years
d) it doesn’t matter as long as the performance is within a reasonable economic cycle
e) none of the above
b
- “Cherry Picking” is considered unethical and illegal. The term Cherry Picking means:
a) selecting only those equities that have a Beta of 1
b) only selecting the clients that are willing to pay higher commissions
c) to use any selection process that selects the best in creating a fund’s performance
d) all of the above
e) none of the above
c
- “Leverage” can be used by an unethical financial services provider to:
a) increase the size of the client’s portfolio
b) to increase the risk of the client’s portfolio
c) to increase his fee or commission
d) all of the above
e) none of the above
d
- The first step you should take in presenting a case that you consider to be unethical, to your manager is:
a) Clearly state the ethical issue
b) Ask your manager what you should do
c) Gather all the facts and identify the problem
d) Identify alternative actions
c
- “Front running” is the practice of trading ahead of the trade of another customer. It is unethical because:
a) it can adversely change the price that a customer trades at
b) the broker has an unfair information advantage about the price of the security
c) The trade can influence the unit price of a fund
d) all of the above
e) none of the above
d
- In an effort to increase the price of his holding in Cassandra Rail and Shipping Co. (CRSC) before he sells it, Tyler Reimer, CFA, logs on to several investor chat rooms on the internet to start rumors that the company (CRSC) is about to expand by buying out a major and yet unnamed railway company. He also implies without any specific proof, that Cassandra Rail and Shipping is on the verge of receiving a major shipping contract for steel.
a) What Standard of Practice has Tyler violated?
b) Why is this unethical?
c) What is this misconduct often compared to?
d) Who gets hurt by this type of scheme?
A)
violated
- Standard II (B) Market Manipulation
- as he manipulated the market to shoot the price up by sending out misinformation
-
Standard I (D) Misconduct
- lied about the infromation he was spreading, veyr dishonest behaviour
B)
Being a CFA, people trust him to provide accurate information
C)
Pump and Dump (share false information about a stock that makes the stock price go in a favourable direction)
D)
the people that invets into the stock and lose money when the invester pulls out his shares.
* teh company he works at, loss of brand rep.
Sandra is a CFA candidate, who is being interviewed for a job by a Marketing and Public Relations firm that specializes in investor communication for its clients. She is asked to write a report on a “start-up” company that plans to go public and intends to draw investor attention. Sandra is told that she will be paid a salary plus a considerable bonus if new investors are attracted by her research.
a) As a CFA candidate, what does Sandra need to do at the interview for the job?
b) What are the ethical issues (means: conflict of interest, fiduicary resp,,,) in question here?
c) What should Sandra say when confronted with this situation during the interview?
A)
Potentially violates: Standard I (B): Independence and Objectivity
She should not be swayed by the extra bonus, her report needs to be unbiased and be independent and her own opinion. Do not put the start up in a favourable position if they aren’t in one.
B)
Conflict of Interest (as she has a personal interest in the money but always has a job to be unbiased).
Social Responsbility: Misleading reports harm both investors and market integrity.
C)
if she is unable to act independently of the the bonus/salary she should decline te job offer
- Jessie James is an investment manager who manages a number of portfolios for high-net-worth clients. A large part of his investment management fee is based on commissions earned by trading securities. Jessie’s firm requires him to attain a minimum commission level. In order to meet that performance criterion for his job, Jessie engages in excessive trading for his clients. Although all the securities purchased for the clients are appropriate for their portfolios and within the acceptable asset class limits, the amount of trading in each account exceeds what is necessary to reach the performance goal.
a) What Standard of ethical behaviour has Jessie violated?
b) Why is this behaviour unethical?
c) What is this practice commonly called? (1 mark)
d) What would you say to your boss if he or she suggested that you do this? (1 mark)
A)
Standard III (A) Loyalty, Prudence, and Care
b)
He is not acting in his client’s favour, he’s abusing their trust by not managing their money wel, and abusing their trust.
He should away be transparent with whta he is doing with client’s money and disclose his management fees.
Not following Fiduaracy Repsonsbility…
c) churning: buying in excessive amount of shares (buy or sell countless of times) in order to earn a commission
D)
this is not accordance to the CFA, my certification doesn’t require me to do
- Sirinder works in a brokerage firm in a 50-story office tower. One day, while taking the elevator down to lunch, he overhears one person quietly inform another person that the Wabush mine, where they were drilling in Northern Ontario, has proven to be empty and will not yield further deposits of nickel. Sirinder exits on the next floor, takes the elevator back to his office, and immediately places a sell order for the stock of that company, which he owns. He then calls a select number of his clients and advises them to sell the stock immediately.
a) What standard of Ethics is being contravened? (List the standard and the sub-section)
b) What ethical issue category is this?
A) Stanadrad II: Material Non-public information
B) Conflict of Interest (acting in his personla interest), But really Information Asymmtry
- mainly about information
During a weekend game of golf, Mr. Dithers, the president of ASTRO Sales Inc., mentions to his golf partner Mr. Fonzarelli, CFA, who is a friend, a golfing partner, and a security analyst, that his company ASTRO is having a very poor quarter and that he will have to lay off staff on Monday morning. That same evening, Mr. Fonzarelli tells his wife to sell all the shares of ASTRO Sales in her portfolio as soon as possible.
a) Explain to Mr. Fonzarelli what the ethical issue is, and why he should not mention anything to his wife?
b) What should Mr. Dithers have done in this case?
c) What are possible fines and the penalties that Mr. Fonzarelli could be subject to?
d) Is Mr. Dithers contravening any laws & which one?
He is breaking a couple of Standards, Standard II(E) Preservation of Confidentiality, Standard II (A) Material No-Public Information
- ethical issue issues can be Information Asymmtry, and Fiduary Repsonsbility, as The CFA abused teh more information that he had and abused teh trust that his partner had in him
b)
* done nothing with th infromation, and wait until teh company released info on the poor quarter
c)
* lead to jail
* no CFA license
* fines
Yes, teh 10-b rule where it prohibts insider trading
Define Moral Hazard
Moral Hazard: refers to the situation where one party takes on risks knowing they won’t bear the full consequences of those risks, often because someone else will absorb the costs
Define Information Asymmetry
Information Asymmetry: is the imbalance of information between two parties, often resulting in an unfair advantage for the informed party.
Define Kickbacks
Bribery or kickbacks: Offering or accepting bribes to influence decisions
