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Free CFA-Level-I Exam Braindumps (page: 109)

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Sunil Vaskar is an employee of Glamorgan, a reputable investment banking firm. Glamorgan is a major underwriter for an equity issued by a private firm, Raindrop Waterworks. Sunil has accidentally discovered that the preliminary prospectus issued by Raindrop contains material overstatements about the scope of its businesses and future earning potential. Sunil:

  1. must report his findings to his supervisor and consult his legal department.
  2. must sever all connections with Glamorgan and dissociate himself from its activities.
  3. need not do anything because the prospectus has been distributed and is, in any case, preliminary.
  4. must report the case to the SEC since there has been a violation of laws governing equity issues.

Answer(s): A

Explanation:

Standard I requires that suspected violation of laws be reported to appropriate supervisory people in the firm. It is also advisable to consult the legal department and dissociate oneself from the illegal activity. Sunil has to dissociate himself from the underwriting process involving Raindrop but he does not have to sever connections with his employer, Glamorgan.



Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart's fiduciary duty is owed to:

  1. the management of Goodner.
  2. the participants and beneficiaries of Goodner's pension plan.
  3. the shareholders of Goodner.
  4. each of these answers equally.

Answer(s): B

Explanation:

Under Standard IV (B.1), Fiduciary Duties, members who manage a company's pension funds owe a fiduciary duty to the participants and benefits of the plan, not the management of the company or the company shareholders.



When formulating an investment policy for a client, which of the following falls under "investor objectives?"

  1. proxy voting
  2. none of these answers
  3. return objectives
  4. time horizon
  5. liquidity needs
  6. investable funds

Answer(s): C

Explanation:

Return objectives are considered under "investor objectives." Liquidity needs, time horizon and proxy voting are considered under "investor constraints."



Standard II (B) deals with ________.

  1. None of these answers
  2. Plagiarism
  3. Use of Professional Designation
  4. Fundamental Responsibilities
  5. Professional Misconduct
  6. Obligation to Inform Employer of Code and Standards
  7. Duty to Employer
  8. Disclosure of Conflicts to Employer

Answer(s): E

Explanation:

Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation.
Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.






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