CFA Ethics and Professional Standards 2

Question 1

Standard III(A) – Loyalty, Prudence, and Care requires that members place whose interests first when managing a portfolio?

Accepted Answer

Clients' interests

Answer

Standard III(A) requires members to act in their clients' best interests and place client interests before their own or their employer's.

Question 2

Which of the following is required under Standard III(B) – Fair Dealing when disseminating investment recommendations?

Accepted Answer

Ensuring all clients have an equal opportunity to act on new recommendations

Answer

Fair dealing requires that all clients have an equal opportunity to act on new recommendations, though simultaneous communication and identical recommendations are not strictly required.

Question 3

Under Standard V(A) – Diligence and Reasonable Basis, an analyst recommending a complex derivative product must:

Accepted Answer

Have a reasonable and adequate basis supported by appropriate research

Answer

Standard V(A) requires analysts to have a reasonable, adequately researched basis for any investment recommendation, regardless of product complexity.

Question 4

The Global Investment Performance Standards (GIPS) are primarily designed to:

Accepted Answer

Ensure fair representation and full disclosure of investment performance

Answer

GIPS standards ensure investment firms present performance results fairly and completely, allowing clients to make meaningful comparisons.

Question 5

Which of the following is a violation of Standard VI(B) – Priority of Transactions?

Accepted Answer

A portfolio manager front-running by trading personal accounts before executing client trades

Answer

Front-running—trading personal accounts ahead of client orders to benefit from anticipated price movements—violates Standard VI(B).

CFA Practice Test

CFA Practice Test

CFA Ethics and Professional Standards 2