Ethics and Professional Standards - 3

10 questions

1. 1. Sue Peterson, CFA works as a full-time investment analyst with a Superior Investment Advisors. Recently, she lost a lot of money on personal ground. To pay for additional expenses, she is thinking about engaging in independent practice over weekends. Under her independent practice, she plans to advice individual clients on their portfolios. Which of the following is most likely a violation of the Code and Standards?
   She starts her independent practice without taking written consent from her employer.She does not notify her employer about her intentions of engaging in an independent practice.She starts her independent practice without notifying all her existing clients.
2. 2. Kris Allen, CFA works with a retail brokerage firm and handles a large number of client accounts. Over the past few months he had to spend an exorbitant amount of money on his mother’s sickness. Eventually he was unable to meet all his obligations and declared personal bankruptcy. He did not disclose his bankruptcy to his clients and continued to work as usual. Has Kris violated any Standard?
   Yes, because as per Standard V (B) he should maintain clear communication with his clientsYes, because as per Standard I (D) he should not engage in any kind of misconduct, or any such act that adversely reflects upon their professional.No, there is no violation of any standard.
3. 3. Peter Scott, CFA works with a large investment firm and manages several pension accounts. One of these accounts earned a higher return of 20% over the past one year. In their prospectus to prospective clients he mentions that based on the past performance they can expect to earn a return of 20%. Which of the following statements is TRUE?
   Peter has violated Standard III (D) Performance presentationPeter has violated Standard I (C) MisrepresentationBoth A and B.
4. 4. Suzanne Evans, CFA supervises a large number of traders at a firm’s trading desk and is responsible for compliance. Suzanne has delegated some of her responsibilities to Adam Hall, CFA. While carrying out his responsibilities he notices that one of the traders is making some trades that are crossing the risk limits assigned to them. She reports this to Suzanne, however, Suzanne does not make any effort to correct the trader’s actions. As per the CFA Institute Standards of Professional Conduct, what should Adam do?
   He should resign from the firm because the firm is not in compliance with the CFA Institute Standards of Professional Conduct.He should decline to supervise in writing, until the firm adopts reasonable procedures and systems.He should not take any action because he has completed his duty by reporting the irregularity to his supervisor, Suzanne.
5. 5. Sean Parker, CFA works with a large investment advisory firm. He is currently analyzing the stocks in airlines industry. He conducts extensive research and concludes that the airlines industry is expected to grow by at least 15% in the next one year. In his research report, he recommends an airlines company to his clients and also states that the airlines industry will grow by 15%. Sean has violated the Standards because:
   He did not distinguish between opinions and facts.He did not consider the suitability of the investment to his clientsHe did not make reasonable effort and diligence before recommending the stock to his clients.
6. 6. Nate Robinson, CFA runs her own investment advisory practice. She has been very positive on DreamNet a telecom company and has been recommending 'Buy' to her clients. However, due to a new regulation, the prospects for DreamNet are low and she expects a decline in their revenue. She changes her recommendation from 'Buy' to 'Sell' and sends the updated research report to all clients having a holding in DreamNet.

   The next day, a client calls her and asks her to buy 10,000 shares of DreamNet. In order to be in compliance with the CFA Institute Standards of Professional Conduct, Nate should

   Decline to accept the order as it is against her recommendationAccept the order immediately Advise the client about the change in her recommendation before accepting the order.
7. 7. Rob McDonough, CFA has recently started work as a research analyst with Alpha Investments. He has been assigned to research a pharmaceutical company and is expected to submit his recommendation within a week. A quick analysis tells him that this is a definite ‘Buy’. He suddenly falls sick and is unable to attend office for a next few days. When he returns he is under pressure to submit the report within a day. He takes the research report of another research firm, makes some changes and presents it to his manager. Rob McDonough has violated which of the following CFA Institute Standard of Professional Conduct?
   Material non-public informationMisrepresentationSuitability
8. 8. Which of the following is not a violation of Standard II (B) Market Manipulation?
   Overstating earnings projection to help increase stock price.Selling a security and immediately purchasing a similar security in order to minimize income tax liability.Buying and selling 10 million shares from a friend on exchange floor at 10% above last trade.
9. 9. John Charter, CFA has been engaged in a variety of stock trading activities. Which of the following activities is a violation of Standard II (B) Market Manipulation?
   He engaged in order splitting to limit the effect on the price of a thinly traded security.He exploited differences in market inefficiencies.He secured a controlling interest in an equity security in order to influence the price of a related derivative instrument.
10. 10. Which of the following is least likely a violation of Standard VII Responsibilities of a CFA Institute Member or CFA Candidate?
    After writing the CFA Level I exam, the candidate comes and tells his friends that there were too many questions from the Financial Reporting section.In the previous year, there was a formal complaint against a CFA member. However, he fails to disclose it in the Professional Conduct Statement.A CFA member does not agree with some of the policies of the CFA institute and discusses the same in a public internet forum.