QUESTION: 49

In order to inform your employer that as a member of AIMR, you must abide by the code of ethics, you must:

inform the legal department in writing.
inform senior management in writing.
inform your immediate supervisor in writing or by email.
inform your supervisor in writing, by email or orally.

Answer(s): C

Explanation:

Standard III (A)

Spassky was assigned the task of managing the portfolio of Fisher three days ago when Anand, who was managing Fisher's portfolio, retired. Fisher's portfolio consists of some deep-in-the-money put options, which will be exercised today, resulting in a cash flow of about $40,000. Spassky has not yet had a chance to meet Fisher in person to determine his needs, investment objectives and risk appetite. He did get a briefing from Anand about the portfolio and has a general idea about Fisher's investment attitude. In fact, over the past two years, Fisher's portfolio has generated handsome returns due to high-risk investments which Fisher prefers. Spassky's problem is determining what he should do with the $40,000. According to the AIMR Code of Ethics, he should:

keep the money in cash form and not risk it till he can meet Fisher to discuss the situation.
"roll over" the put positions for another week or two till he can meet Fisher and discuss the reinvestment of the funds.
invest the funds in a diversified portfolio with a risk profile similar to what Anand and Fisher have been maintaining over the past 3 months.
invest the funds in highly liquid, cash equivalent assets till he can meet Fisher and determine his needs, investment objectives and risk appetite.

Answer(s): D

Explanation:

In most cases, a portfolio manager must manage a portfolio based on the investment needs and objectives of the portfolio owner consistent with the willingness to bear risk. One exception to this rule is when a new portfolio manager takes over and has the task of reinvesting funds arising from the existing portfolio investments. Since these funds should not be kept idle, a prompt investment of the money in liquid, risk-free securities is prescribed by the AIMR code of Ethics.

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QUESTION: 51

Willier is the research analyst responsible for following Company X. All the information he has accumulated and documented suggest that the outlook for the firm's new products is poor, so the stock should be rated a weak hold. During lunch, however, Willier overhears a financial analyst from another firm offer opinions that conflict with Willier's forecasts and expectations. Upon returning to his office, Willier releases a strong buy recommendation to the public. Willier:

violated the Standards by failing to distinguish between facts and opinions in his recommendation.
was in full compliance with the Standards.
violated the Standards because he did not have a reasonable and adequate basis for his recommendation.
violated the Standards because he did not seek approval of the change from his firm's compliance department.

Answer(s): C

Explanation:

The question deals with Standard IV (A.1), Reasonable Basis and Representations. Willier's actions in changing the recommendation based on the opinion of another financial analyst is not an adequate basis for the recommendation. This question does not illustrate a violation of the need to distinguish between facts and opinions. Seeking approval from the firm for a change in a recommendation is a matter of policy set by the firm, not by the Standards.

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QUESTION: 52

Under AIMR Rules of Procedure for the Proceeding Related to Professional Conduct, membership in AIMR and/or the right to hold and to use the CFA designation may be summarily suspended by AIMR's Designated Officer for the following misconduct:

Conviction for a crime that is defined as a felony or its equivalent.
II. Indefinite bar from registration under the securities laws (even though reapplication may be made after a specific period of time).
III. Failure to complete and return a professional conduct statement for each of two successive years.
I only.
I and II only.
IV only.
II only.
III only.
II and III only.
I, II and III.

Answer(s): G

Explanation:

This question relates to AIMR's summary suspension powers as defined in the Bylaws under the Professional Conduct Program. Statements I, II and III describe grounds for summary suspension of membership in AIMR and/or the right to hold and use the CFA designation.

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