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Free CFA-Level-I Exam Braindumps (page: 64)

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According to Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to ________.

  1. members' ownership of stock in companies they recommend
  2. broker-sponsored limited partnerships formed to invest venture capital
  3. service on a board of directors
  4. none of these answers

Answer(s): A

Explanation:

Under Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to members' ownership of stock in companies they recommend. To avoid discrimination against members, sell-side members should disclose any materially beneficial ownership interest in a security or other investment that the member is recommending. Buy-side members should disclose their procedures for reporting requirements for personal transactions.



Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

  1. the manager's soft-dollar practice must be disclosed.
  2. the manager may seek satisfactory price and execution.
  3. the goods or services purchased must be for "research service."
  4. none of these answers.
  5. the commission paid must be reasonable in relation to the research and execution services received.

Answer(s): B

Explanation:

The manager must seek BEST price and execution.



Which of the following AIMR Standards states that the financial analyst shall indicate the basic characteristics of the investment involved when preparing a research report not directly related to a specific portfolio or client?

  1. III D
  2. III C
  3. None of these answers
  4. IV (A.2)

Answer(s): D

Explanation:

Standard IV (A.2) - Research Reports states: "Members shall indicate the basic characteristics of the investment involved when preparing for public distribution a research report that is not directly related to a specific portfolio or client."



Monserrat Troy is a portfolio analyst at Merryl Flynch Inc., a leading investment bank. Merryl's corporate policy prohibits its employees from trading in IPOs even if they are not being underwritten by Merryl. Recently, a fast- growing internet firm, Netblaze, announced that it was going public. Monserrat's friend, Victor, told her that he could get her bid in for a few shares of the IPO. The size of the deal was very small, amounting to less than a couple of thousand dollars. Monserrat went ahead and bought the shares but did not think it was necessary to inform her supervisor about it. She:

  1. violated Standard II (B) - Professional Misconduct - by violating company policy.
  2. did not violate the AIMR code of conduct even though she violated the company policy since the size of her transaction was extremely small.
  3. violated Standard III (B) - Duty to Employer - by violating company policy.
  4. violated Standard III (C) - Disclosure of Conflicts to Employer - by violating company policy.

Answer(s): D

Explanation:

Merryl's policy is designed to prevent any conflicts or even appearances of conflicts of interest when its employees trade in capital markets. If Monserrat wants to trade in a particular IPO, she needs to obtain special permission from Merryl's Compliance department (and such permission may or may not be granted by Compliance). Without such an exception, Monserrat's behavior is a violation of Standard III(C) - Disclosure of Conflicts to Employer. Note that Standards II (B) and III (B) do not apply to this situation.






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