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Free CFA-Level-I Exam Braindumps (page: 74)

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ERISA fiduciaries must adhere to the following prudent procedures:
- establish a written investment policy for the plan - diversify plan assets
- make investment decisions with the skill and care of a prudent expert
- monitor investment performance
- control investment expenses
- avoid ________ transactions

  1. insider
  2. diversification
  3. prohibited
  4. none of these answers
  5. commitment

Answer(s): C

Explanation:

These procedures are stipulated under the detailing of ERISA fiduciary duties, to ensure that fiduciary complies with the duty to act with prudence. Although the ERISA fiduciary duty allows for a fairly broad range of investments, it does prohibit certain transactions. An ERISA fiduciary can never: - deal with plan assets in his or her own interest or for his or her own account (self-dealing); - act in a transaction involving the plan on behalf of a party with interest adverse to the plan (conflict of interest); - receive any compensation for his or her own personal account from any party dealing with the plan in connection with a transaction involving plan assets (kickbacks).



With regard to calculation of returns for international portfolios, a consistent source of ________ should be used.

  1. exchange rates
  2. settlements
  3. trades
  4. taxes
  5. disclosures

Answer(s): A

Explanation:

Whenever the currency overlay manager is notified of changes in the underlying currency exposures as a result of a shift in the underlying assets, the currency overlay portfolios should be revalued to ensure consistency.



Sanctions that AIMR may impose on its members include:

  1. Revocation of the member's registration as an investment advisor.
    II. Private censure.
    III. A monetary fine.
    IV. Suspension of membership.
  2. II and IV only.
  3. I and III only.
  4. II, III and IV only.
  5. I, II, III and IV.

Answer(s): A

Explanation:

The question deals with the disciplinary sanctions available to AIMR's PCP. The PCP can suspend membership or impose a private censure on members for violating the Code and Standards. However, AIMR has no authority to revoke a member's registration as an investment advisor, or to impose a monetary fine.



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

  1. risk tolerance
  2. none of these answers
  3. type and nature of clients
  4. expected cash flows
  5. investable funds

Answer(s): C

Explanation:

"Client identification" requires that the type and nature of clients be considered. Risk tolerance is considered under "investor objectives." Investable funds and expected cash flows are considered under "investor constraints."






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