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Free CFA-Level-I Exam Braindumps (page: 79)

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PDF with 3963 Questions

________ investing is investing with a view toward the social or political statements made by such an investment.

  1. None of these answers
  2. Charitable
  3. Political
  4. Social

Answer(s): D

Explanation:

Fiduciaries often feel pressure from various constituencies to engage in social investing - investing with a view toward the social or political statements made by such an investment. Members should keep in mind that although such investment may be benign the fiduciary duty of prudence is paramount and dictates that trustees judge investments according to the criteria of risk and return, asset diversification and cost- conscious investing.



Andrea Anastasio heads the research wing at HiLo Funds, Ltd., an investment advisory and money management firm. Andrea was recently informed by one of her junior analysts, Marcus Cambus, that the investment recommendation on HotPots food chain stock needed an immediate downgrade from hold to sell. This was based on talks with HotPots' management whom revealed that HotPots would be launching an ill- advised expansion plan soon (this information has been discussed in the financial newspapers, too). Andrea checked Marcus' analysis and agreed with the conclusions. Deciding to include this in her research newsletter, Andrea informed a few of the portfolio managers about the change. She did warn them that no action on the news should be taken before the newsletter was out for at least 4 days. However, Cotler, one of her subordinates and an AIMR member, inadvertently and prematurely sold off a large chunk of the holdings of Hotpots stock in one of his larger accounts. A month-end review of accounts DID NOT catch the violation.
Which of the following is/are true?

  1. Andrea has not violated any AIMR code but Cotler has violated Standard III (B) - Duty to Employer.
    II. Andrea has violated Standard III (E) - Responsibilities of Supervisors.
    III. Cotler has violated Standard V (A) - Prohibition against Use of Non-Public Information.
    IV. Cotler has violated Standard IV (B.3) - Fair Dealing.
  2. III and IV only
  3. II and IV only
  4. I only
  5. II, III and IV only

Answer(s): B

Explanation:

Since the information has been discussed in the financial newspapers, it certainly is not non-public information and no violation of Standard V (A) - Prohibition against Use of Non-Public Information has occurred. However, by treating one of his larger accounts differently, Cotler has violated Standard IV (B.3) - Fair Dealing which requires him to treat all of his clients fairly, without bias. By ignoring Andrea's admonitions and committing these violations, he has potentially harmed his employer (this is in breach of Standard II (B) - Professional Misconduct, not Standard III (B) - Duty to Employer, which is quite specific about its scope of activities covered). Andrea, on the other hand, has been negligent in not carrying out her supervisory duties. She should have either not revealed the change in investment recommendation to her employees or if she deemed it necessary to do so, should have takenappropriate steps to ensure that violations of her instructions did not occur. Simple verbal or even written warnings are not good enough to absolve her of violating Standard III (E) - Responsibilities of Supervisors. Further, the fact that a month- end review of accounts did not detect Cotler's irresponsible actions implies that stricter or more efficient monitoring is required of Andrea.



Under Standard IV (B.6), Prohibition against Misrepresentation, a member may discuss a "guaranteed" investment, as long as that investment is which of the following?

  1. domestic stocks
  2. foreign stocks
  3. medium-term notes
  4. long-term bonds
  5. none of these answers
  6. short-term Treasury securities

Answer(s): F

Explanation:

Standard IV (B.6) prohibits statements that an investment is "guaranteed", or that superior returns can be expected in the future based on the member repeating past success. It does not preclude truthful statements on investments with guaranteed returns, such as some insurance contracts, short-term Treasury securities and insured bank deposits.



According to the AIMR-PPS, performance must be calculated

  1. before or after the deduction of trading expenses, as long as that information is disclosed.
  2. before or after the deduction of trading expenses, without the need for disclosures because there will be no difference in the numbers.
  3. before the deduction of trading expenses.
  4. after the deduction of trading expenses.

Answer(s): D

Explanation:

Performance must be calculated after the deduction of trading expenses (e.g., broker commissions and SEC fees), if any. This is a requirement for calculation of returns.






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