QUESTION: 69

Jorgenson is a senior bond analyst with Morgan Co., a large investment banking firm. Over the past quarter, Morgan's corporate bond department has been betting on the credit spreads in the market narrowing and in anticipation, has invested a large amount of capital in the bonds of two firms, High Tech and Amerizone.com. Unfortunately, the credit spreads have not displayed much activity and as the quarter end is approaching, the department wants to unload the bonds. For this, it puts pressure on Jorgenson to push the bonds on some of

his larger clients. Jorgenson believes that both the bonds are good investments since High tech and Amerizone have been doing very well and their prospects look rosy. So he goes ahead and convinces his clients to purchase as much as a third of Morgan's bond holdings in these companies. Morgan has

not violated the AIMR code of ethics.
violated Standard IV (A.1) - Reasonable Basis and Representations.
violated Standard IV (B.7) - Disclosure of conflicts to Clients and Prospects.
violated Standard IV (A.3) - Independence and Objectivity.

Answer(s): A

Explanation:

There is no evidence that Jorgenson has bowed to any external pressure in recommending the bonds to his clients. If his analysis indicates, in his judgment, that a security is a good investment and suits the needs of a client, then he should recommend it, regardless of whether there is any external pressure for or against that course of action.

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QUESTION: 70

Emmy Noether is a senior division manager at Harding & Harding, a money management firm. Emmy is quite fastidious about following the rules of the investment industry and has established specific procedures and guidelines designed to prevent any violations. Recently, it surfaced that one of the employees reporting to Emmy, William Bathwater, had been secretly using inside information on a computer maker to generate profits in his portfolio. William had been extremely clever at hiding these profits and only a serendipitous audit by the Compliance Department revealed the pattern. Emmy, in her capacity as William's supervisor, has:

has not violated any standard in the AIMR code of ethics.
none of these answers.
violated Standard III (E) - Responsibilities of Supervisors - by failing to check William's behavior.
violated Standard III (B) - Duty to the Employer - by failing to check William's behavior.

Answer(s): A

Explanation:

Under Standard III (E) - Responsibilities of Supervisors, members must take reasonable care to ensure that their subordinates do not violate any laws or the code of conduct. This includes designing effective procedures to deter fraudulent activity. However, no amount of scrutiny can prevent the cleverest of frauds. What is expected of the members is that they be diligent enough in carrying out their duties. In the present case, given the facts, Emmy cannot be faulted for William's criminal activity since she hasn't been found to be negligent in any way. Hence, she has not violated Standard III (E) - Responsibilities of Supervisors nor any other standards.

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QUESTION: 71

NL is a country with no securities laws. LS is a country that has securities laws that are less strict than the AIMR code of ethics while MS has securities laws that are stricter than the code of ethics. Which of the following is/are true?

A member who lives in NL must always follow the AIMR code.
II. A member who lives in MS is governed by the AIMR code.
III. A member lives in NL but does business in MS. If MS laws apply to her business transactions, she must follow the AIMR code.
IV. A member lives in LS and does business in NL. He must always follow the AIMR code.
II and IV only
I and IV only
I, II, III and IV
II and III only

Answer(s): B

Explanation:

An AIMR member must always adhere to the code of ethics, unless the laws governing his/her behavior are stricter, in which case, the stricter laws must be followed. A member governed by MS must always follow the MS laws since they are stricter. Standard I.

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QUESTION: 72

Because it is not the preferred method recommended by the PPS, the use of ________ valuation needs to be disclosed.

new-date
settlement-date
trade-date
old-date
survivor-date

Answer(s): B

Explanation:

Trade-date valuation is recommended when calculating performance, although settlement-date valuation is acceptable if disclosed.

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