Question 1
Multiple ChoiceA CFA charterholder is asked to write a research report on a company that is also a client of the analyst’s employer. To maintain independence and objectivity, the analyst should:
Explanation
According to Standard I(B) Independence and Objectivity, analysts must avoid situations where external pressures or conflicts of interest can influence their judgment. Disclosure of conflicts and conducting unbiased research based on independent analysis helps maintain integrity and trust.
Question 2
Multiple ChoiceA CFA charterholder is hired to write research sponsored by a company seeking to raise capital. To comply with the CFA Institute Code and Standards, the analyst should:
Explanation
Standard I(B) Independence and Objectivity requires that issuer-paid research be conducted in a manner that preserves the analyst’s impartiality. Negotiating a flat fee before the report is written avoids incentives that could bias the content and ensures the analyst’s judgment remains independent.
Question 3
Multiple ChoiceA CFA charterholder conducts business in a foreign country where new securities regulations were recently introduced. The charterholder unknowingly fails to follow one of these new rules but corrects the mistake immediately upon notification by the local regulatory authority. Has the charterholder violated Standard I(A)?
Explanation
Standard I(A) Knowledge of the Law requires CFA Institute members and candidates to understand and comply with all applicable laws, rules, and regulations, including those of any foreign jurisdictions in which they operate. Failing to stay informed, even if unintentional, constitutes a violation.
Question 4
Multiple ChoiceA CFA charterholder changes her investment recommendation after overhearing a conversation between two analysts discussing a company's potential merger. She does not conduct any further analysis before issuing the new recommendation. This action is a violation of:
Explanation
Standard V(A) requires members and candidates to exercise diligence, independence, and thoroughness in analyzing investments and to have a reasonable and adequate basis for any investment analysis, recommendation, or action. Relying on overheard, unverified information fails to meet this standard.
Question 5
Multiple ChoiceA CFA charterholder is evaluating whether to use client brokerage to purchase third-party research that may benefit other clients. Which Standard primarily governs the member’s responsibility in this situation?
Explanation
Standard III(A) requires members to act for the benefit of their clients and place client interests before their own. This includes ensuring that the use of client brokerage (soft dollars) provides direct or indirect benefits to the client and aligns with their best interests.
Question 6
Multiple ChoicePriya Nair, CFA, is registered in the country of Westoria, where investment professionals are prohibited from accepting any form of compensation or gifts from external parties in connection with investment analysis. While traveling for business in Eastaria, where no such restrictions exist, Nair receives a valuable bottle of wine from a company she is evaluating for potential investment.
What is Nair’s most appropriate course of action under the CFA Institute Code and Standards?
Explanation
Standard I(A) Knowledge of the Law requires members to comply with the most stringent applicable law or regulation. Since Westoria’s laws prohibit accepting such gifts and are stricter than those of Eastaria, Nair must decline the gift to remain in compliance.
Question 7
Multiple ChoiceRachel Tan, CFA, relocates her investment advisory practice from a country with stringent disclosure laws to a jurisdiction with relatively relaxed securities regulations. In her new country, she is no longer legally required to inform clients about certain conflicts of interest related to her firm’s compensation arrangements. However, the CFA Institute Code and Standards impose stricter disclosure requirements.
According to the CFA Institute Code and Standards, Tan must:
Explanation
Standard I(A) Knowledge of the Law requires members and candidates to comply with the most stringent law, regulation, or standard applicable to their professional activities. If the CFA Institute Code and Standards impose higher requirements than the local law, the member must follow the stricter rules to remain in compliance.
Question 8
Multiple ChoiceA CFA charterholder is working in a country where securities regulations are less strict than those imposed by the CFA Institute Code and Standards. To remain in compliance, the charterholder must:
Explanation
Standard I(A) Knowledge of the Law requires members and candidates to comply with the more stringent rule when there is a conflict between local laws and the CFA Institute Code and Standards. This ensures the highest level of ethical conduct and investor protection.
Question 9
Multiple ChoiceEmily Zhang, CFA, is visiting a publicly traded tech firm as part of her industry research. While waiting for a meeting to begin, she overhears senior managers discussing an unannounced partnership with a major global retailer. Believing this could significantly impact the firm’s stock price, Zhang considers updating her recommendation to clients.
According to the CFA Institute Code and Standards, Zhang should:
Explanation
Standard II(A) Material Nonpublic Information prohibits members and candidates from acting or causing others to act on material nonpublic information. The overheard conversation is both material and nonpublic, and acting on it would violate the standard. Zhang must wait until the information is publicly disseminated.
Question 10
Multiple ChoiceMaya Li, CFA, receives a phone call from a supplier of Orbitron Corp., who reveals that the company has placed a significantly higher number of orders this quarter—information that has not yet been disclosed to the public. Li currently has a neutral rating on Orbitron based on expected flat revenue growth.
According to Standard II(A) Material Nonpublic Information, Li should:
Explanation
Standard II(A) prohibits acting on or causing others to act on material nonpublic information. Li must not act on the information until it becomes public and should encourage the company to make the information available to the public to level the playing field for all investors.