cc-ethics

8/13/2019 CC-Ethics

1/50

www.edupristine.com

Crash Course forEthics

CFA Level-I Exam

This files has expired at 30-Jun-13

8/13/2019 CC-Ethics

2/50

www.edupristine.com Neev Knowledge ManagementPristine

Ethical and Professional Standards


8/13/2019 CC-Ethics

3/50

8/13/2019 CC-Ethics

4/50


Act with integrity in the global capital markets

Integrity above personal interest

Reasonable care in investment analysis

Practice in Ethical Manner

Promote the integrity of capital markets

Maintain professional competence

Ethical & Professional Standards

Ethical Standard Global Investment Professional Standard (GIPS)Code of Ethics


8/13/2019 CC-Ethics

5/50


Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients

Investment Analysis ,

Recommendations &

Actions

Responsibilities as a

CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics

6/50


Q. Mr. Ritesh Shah, CFA works for Lemon Brothers and is responsible for covering automobile sector across Europe. One of the automobile company

that he covers has arranged analyst meet in Monte Carlo, for which company has arranged presidential suite for Mr. Shah and dinner with F1 champion

driver. Is Shah in violation of CFA standards of professional conduct if he accepts the proposal?

Ans.Mr. Shah has violated Standard I(B) because accepting these substantial gifts or royal treatment may impede his independence and objectivity.

Basic expenses for travel and accommodations should have been paid by his employer.

Q. Rachit Jain, CFA works for an Indian arm of US based investment bank. Indian securities law allow investment bankers, fund managers in

participating primary market for their own accounts, whereas US law prohibits managers from participating in IPOs. Jain has applied for shares in

NMDC IPO, which is underwritten by his own bank. Is Jain in violation of code and standards of ethics, if he fails to corner any shares of NMDC?

A. The correct answer is Violated standard I(A) Knowledge of the Law

Jain should have followed US law which is more stringent than local law

Knowledge of Law: Understand and comply with all applicable laws, rules, and regulations

Independence & Objectivity: Use reasonable care and judgment to achieve and maintain independenceand objectivity

Misinterpretation: Do not make any misrepresentations knowingly

Misconduct: Do not engage in any professional conduct involving dishonesty, fraud, or deceit

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics

7/50www.edupristine.com Neev Knowledge ManagementPristine

Q. Jain, CFA is working for a multinational auditor and during the process of auditing books of account of a

publicly listed company, he comes to know that particular company is misstating its revenue. Immediately

next day Jain manages to offload his personal holding in that particular company. Is Jain in violation of anyof the code and standards of ethics?

A. The correct answer is Violated standard II(A) Material nonpublic information

Jain should not have acted upon any material nonpublic information, which gives him advantage over any

other investor.

Material nonpublic information: Do not act or causeothers to act on the material non public information.

Market Manipulation:Do not engage in practices that

distort prices or artificially inflate trading volume with the

intent to mislead market participants.

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Q. Mr. Jayant Patel, CFA is working for Neev Bank and serve BanksHNI clients. Recently he acquired a new HNI client, to whom Mr.

Patel promised shares of the latest hot IPO at the time of acquisition. Is Mr. Patel in violation of CFA standards of professionalconduct?

Ans. Mr. Patel has violated Standard III(B) fair dealing by offering client IPO shares at the cost of his old clients. Patel is providing

investment recommendations before making inquiries about the clients financial situation, investment experience, or investment

objectives. Patel is thus violating Standard III(C)Suitability.

Loyalty, prudence & care: Loyalty to their clients and act with reasonable care and exercise prudent judgment.

Fair dealing:Deal fairly and objectively with all clients in all professional activities.

Suitability: Make investment recommendations that are consistent with the stated objectives and constraints of the clientsportfolio

Performance presentation:Communication about investment performance must be fair, accurate, and complete .

Preservation of confidentiality: Keep information about current, former, and prospective clients confidential unless:

The information concerns illegal activities,

Disclosure is required by law,

The client or prospective client permits disclosure of the information.

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Loyalty:Act for the benefit of employer and not deprive employer of the advantage of any skills and abilities,

Additional compensation arrangements: Must not accept gifts, benefits, compensation, or consideration that likely to createconflict of interests

Responsibilities of supervisors:Make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations,

Q. Ms Juhi Kashyap currently works at a investment company as an equity analyst. Without notice to her employer, she registers

with government authorities to start an investment company that will compete with her employer. Does registration of this competing

company constitute a violation of Standard IV(A)?

Ans. Juhis preparations for the new business by registering with the regulatory authorities do not conflict with the work for her

employer if the preparations have been done not at the cost of his office work.

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Q. A portfolio manager allocates IPO shares to her

sistersfee based account, after allocating shares toall other clientsportfolio. Is she in violation of any of

the code and standards of ethics?

A. The correct answer is Violated standard III(B) Fair

dealing. Manager should have treated her sisters

account at par with her any other client.

Diligence & Reasonable Basis: Exercise diligence, independence and thoroughness in

analyzing investments. Have a reasonable and adequate basis, supported by appropriate

research and investigation Communication with clients & prospective clients:Disclose to clients the basic format

and general principles of the investment processes. Use reasonable judgment in identifying

which factors are important to their investment analyses, Distinguish between fact and

opinion

Record Retention: Must develop and maintain appropriate records to support their

investment analysis, recommendations, actions, and other investment-related

communications with clients

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Q. Mr. Aditya Sarkar, CFA who covers Shivam Computers, came to know about the fraud in Co. through his personal sources,

upon which he decides to sell his personal shares immediately. Is Mr. Sarkar in violation of CFA standards of professional

conduct?

Ans. Mr. Sarkar has not only violated Standard VI(B) by giving preference to his personal transaction over the clients &employers but also violated Standard II(A) by acting on the material non-public information

Q. Members and candidates must disclose their employer and

clients any consideration or benefit received for the

recommendation of products or services. Members must adhere to

this guideline in order to comply with:

A. The correct answer is Standard VI(C) Referral fees

Disclosure of conflicts: full and fair disclosure of all matters that could reasonably be expected to impair their

independence and objectivity

Priority of transaction:Investment transactions for clients and employers must have priority over investment transactionsin which a Member or Candidate is the beneficial owner

Referral Fees:Disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration

received

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Conduct as members &candidate in CFA program

Refer to CFA institute, the CFA

designation & CFA program

Professionalism

Integrity of

Capital

Markets

Conflicts

of Interest

Duties to

Clients


Recommendations &

Actions


CFA institute

Member or CFA

Candidate

Duties to

Employer




8/13/2019 CC-Ethics


Objective

Global acceptance of calculation of

investment performance in a fair,

comparable format

Consistent accurate performance data

Promote fair competition

Self Regulation

Characteristics

Firm: Distinct Business Entity

Fair Representation and Full Disclosure of results

Composite presentation for 5 years

Specific calculation disclosure required

Contain both required and recommended Provisions

No Partial Compliance

Follow Local law; disclose conflict

Q. Which of the following should be the course of action for a firm which is located in a country with exist ing

performance reporting standards and these regulations conflicts with GIPS?

a. Firm must follow GIPS, because GIPS is a global standards

b. Firm must follow country specific regulations

c. Firm must follow country specific regulations but must disclose the nature of the conflict

A. The correct answer is Firm must follow country specific regulations but must disclose the nature of the

conflict

Q. Which of the following is least likely to be included in all advertisements that

include a claim of compliance with the GIPS advertising guidelines?

a. A description of the firm

b. Total return calculation methodology

c. The GIPS advertising guidelines compliance statement

A, The correct answer is Total return calculation methodology




8/13/2019 CC-Ethics


Q. Which of the following is least likely to be true in case of

representation of GIPS compliant performance

composite?

1. Atleast 5 years of performance record is necessary

2. Performance record up to 10 years is required

3. Atleast 7 years of performance record is necessary

Ans.Atleast 7 years of performance record is necessary

Eight Sections of GIPS Standards: Fundamentals of compliance,

Definition

Policy Documentation

Compliance

Update Compliance

Appropriate Verification Statement

Input data,

Calculation methodology,

Composite construction,

Disclosures,

Presentation & Reporting,

Real estate, &

Private equity




8/13/2019 CC-Ethics

15/50www.edupristine.com

Question 1

Rachit Jain, CFA works for an Indian arm of US based investment bank. Indian

securities law allow investment bankers, fund managers in participating primary marketfor their own accounts, whereas US law prohibits managers from participating in IPOs.

Jain has applied for shares in NMDC IPO, which is underwritten by his own bank. Is

Jain in violation of code and standards of ethics, if he fails to corner any shares of

NMDC?

A. Not violated any code and standards of ethics

B. Violated standard I(A) Knowledge of the LawC. Violated standard III(B) Fair dealingThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics


Answer 1

B.

Jain should have followed US law which is more stringent than local law


8/13/2019 CC-Ethics


Question 2

Moby Dick, CFA works in an Ethiopian arm of a Mexico based investment bank.

Ethiopian and Mexican securities law allow investment bankers, fund managers inusing material non public information for making investment decisions. Dick consulting

with his supervisor uses material non public information for making investment

decisions. Is Dick and his supervisor in violation of codes and standard of ethics?

A. Not violated any code and standards of ethics

B. Dick violated standard I (A) Knowledge of Law and his supervisor didnt violate any

standardC. Dick violated standard I (A) Knowledge of Law and his supervisor violated IV(C)

Responsibility of Supervisor


8/13/2019 CC-Ethics


Answer 2

C.

Since Codes and standards doesnt allow using material non public information formaking investment decisions , a member should adhere to the strictest of all laws

which is in this case Codes and Standards. The supervisor violated IV(C)

Responsibility of Supervisor , since there was not proper compliance procedures in

place to prevent the activity


8/13/2019 CC-Ethics


Question 3

Jain, CFA is working for a multinational auditor and during the process of auditing

books of account of a publicly listed company, he comes to know that particularcompany is misstating its revenue. Immediately next day Jain tells the supervisor about

his observation and supervisor doesnt take much interest in Jains observation. Then

Jain offloads his personal holding in that particular company. Is Jain in violation of any

of the code and standards of ethics?

A. Violated standard II(A) Material nonpublic information

B. Violated standard I(D) MisconductC. Not violated any code and standards of ethicsThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics


Answer 3

A.

Jain should not have acted upon any material nonpublic information, which gives himadvantage over any other investor.


8/13/2019 CC-Ethics


Question 4

Kashish CFA is working with ABC financial firm. After finding a reasonable basis, he

sends a purchase recommendation to all the clients for which the followingrecommendation is suitable. Then he calls two of his HNI clients and discuss about the

recommendation. Has Kashish violated any standards:

A. Violated the standard III(B) Fair Dealing, because he called only his two clients

B. Violated the Standard III(A) Loyalty, Prudence and Care

C. Didnt violate any Standards


8/13/2019 CC-Ethics

22/50

8/13/2019 CC-Ethics

23/50

www.edupristine.com

Question 5

A fund manager for a big pension fund is on the board of directors of a company, which

is a part of pension funds portfolio. As a board member, CFA institute memberreceives sitting fees for attending board meetings and free membership of recreational

club. Is member in violation of any of the code and standards of ethics, if member has

informed his employer about sitting fees but not about membership?

A. Violated IV(B) additional compensation arrangements

B. Violated standard III(A) Loyalty, prudence and care

C. Not violated any code and standards of ethicsThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

24/50

www.edupristine.com

Answer 5

A.

Member should have informed his employer about membership of club


8/13/2019 CC-Ethics

25/50

www.edupristine.com

Question 6

Which of the following is least likely recommended procedures for compliance of

standard VI(B) priority of transactionA. No restriction on participation in initial public offering.

B. Members must fully disclose to investors their firms personal trading policies

C. Employees involved in investment decision making should have blackout periods

prior to trading for clients


8/13/2019 CC-Ethics

26/50

www.edupristine.com

Answer 6

A.

There should be limited participation or no participation in equity IPO to address

conflicts created by personal investing.


8/13/2019 CC-Ethics

27/50

8/13/2019 CC-Ethics

28/50

www.edupristine.com

Answer 7

A.

Manager should have treated her sisters account at par with her any other client.


8/13/2019 CC-Ethics

29/50

www.edupristine.com

Question 8

Mrs Meenakshi CFA , an analyst for a Indian Brokerage firm researches the

Biotechnology industry in India.She makes a following statement in the recent reportBased on the fact that the Biotechnology sector has seen rapid growth in new orders,

we believe that most of the companies will able to convert the revenue increase into

profits. We are sure that this trend will continue over for the next 3-5 years The report

then goes describing about the details of the industry. Meenakshis report has:

A. Not violated any standards

B. Violated Standard V(A) Diligence and Reasonable basisC. Violated Standard V(B) Communication with clients and prospective clientsThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

30/50

www.edupristine.com

Answer 8

C.

Since she is not able to distinguish between Fact and opinion and states the they aresure that this particular trend will continue in the future years


8/13/2019 CC-Ethics

31/50

www.edupristine.com

Question 9

Which of the following is least likely to be correct regarding guidance provided by CFA

institute in order to comply with Standard I (B) Independence and objectivity?A. Analyst should not be pressurized by the companies they cover to issue favourable

rating

B. Use various sources other than company management like suppliers, clients and

competitors for research

C. Even if the conflicts are effectively managed and disclosed, analyst should not work

with investment bankers in road showsThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

32/50

www.edupristine.com

Answer 9

C.


8/13/2019 CC-Ethics

33/50

8/13/2019 CC-Ethics

34/50

www.edupristine.com

Answer 10

A.

Use of public sources to get contact details of previous clients in order to solicit thebusiness does not violate any standards.


8/13/2019 CC-Ethics

35/50

www.edupristine.com

Question 11

Mr Bains, CFA has friend in Research and development department of LCD

manufacturing company Sony. He received information from him on social networkingsite that company has developed a new product and it will boost the revenue of a

company going forward. According to the code and standards this information is:

A. Both material and nonpublic and Bains should not act on it

B. Both material and nonpublic and Bains should not act on it for the personal benefits

but can act for the benefits of his clients

C. Public as information was shared on social networking site and accessible togeneral publicThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

36/50

www.edupristine.com

Answer 11

A. Since Mr Bains friend is working in Research and development department , he

will have material non public information about the new product and its capacity togenerate revenues for the company. Hence it is both material and non public

information and Bains should not act on it .


8/13/2019 CC-Ethics

37/50

www.edupristine.com

Question 12

A sell side analyst promised banks investment banking client that bank will initiate the

coverage on company post IPO. Is member in violation of any of the code andstandards of ethics?

A. Violated standard I(B) Independence and objectivity

B. Violated standard V(A) Diligence and reasonable basis

C. Not violated any code of ethics and standards


8/13/2019 CC-Ethics

38/50

www.edupristine.com

Answer 12

C.

Promise to start the coverage does violate code of ethics and standards.


8/13/2019 CC-Ethics

39/50

www.edupristine.com

Question 13

In a marketing brochure of a company member has used the simulated results of an

investment strategy and fails to disclose to the clients that the results are not actual butgenerated through simulation model. Is member in violation of any of the code and

standards of ethics?

A. Violated standard I(C) Misrepresentation

B. Violated standard III(D) Performance representation

C. Violated both standard I(C) Misrepresentation and III(D) Performance

representationThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

40/50

www.edupristine.com

Answer 13

B.

Member has violated standards by not disclosing clients that results are simulated andnot actual.


8/13/2019 CC-Ethics

41/50

www.edupristine.com

Question 14

Which of the following is least likely to be compliance procedures adopted by an

employer in order to comply with standard IV(C) responsibilities of supervisors?A. Designate a compliance officer with authority clearly defined

B. Seek an opinion of legal counsel

C. Procedures for reporting violations and sanctions


8/13/2019 CC-Ethics

42/50

www.edupristine.com

Answer 14

B. Seeking opinion of legal counsel is not a compliance procedure to be adopted by

the supervisor , rather it is a measure taken by employee when he feels the

company procedures are inadequate .


8/13/2019 CC-Ethics

43/50

www.edupristine.com

Question 15

A member is a research analyst with a local brokerage house, does not recommend an

undervalued stock to his employer as he wants to buy this undervalued stock for his

personal account. Is member in violation of any of the code and standards of ethics?

A. Violated standard VII(B) Priority of transactions

B. Violated standard IV(A) Loyalty

C. Violated both Violated standard VII(B) Priority of transactions and Violated standard

IV(A) Loyalty


8/13/2019 CC-Ethics

44/50

www.edupristine.com

Answer 15

B.

Members and candidates must act for the benefit of the employer and not deprive theemployer of the advantage of their skill and abilities.


8/13/2019 CC-Ethics

45/50

www.edupristine.com

Question 16

Which of the following should be the course of action for a firm which is located in a

country with existing performance reporting standards and these regulations conflicts

with GIPS?

A. Firm must follow GIPS, because GIPS is a global standards

B. Firm must follow country specific regulations

C. Firm must follow country specific regulations but must disclose the nature of the

conflict


8/13/2019 CC-Ethics

46/50

www.edupristine.com

Answer 16

C.

As per GIPS , companies need to follow the local law for cases in which a local orcountry specific law or regulation conflicts with GIPS , but need to disclose the conflict.


8/13/2019 CC-Ethics

47/50

www.edupristine.com

Question 17

Which of the following is least likely to be included in all advertisements that include a

claim of compliance with the GIPS advertising guidelines?

A. A description of the firm

B. Total return calculation methodology

C. The GIPS advertising guidelines compliance statement


8/13/2019 CC-Ethics

48/50

www.edupristine.com

Answer 17

B.

A firm is least likely to include total return calculation methodology in itsadvertisements.


8/13/2019 CC-Ethics

49/50

www.edupristine.com

Question 18

Which of the following is least likely to be a violation of standard I(D) Misconduct?

A. Member has been arrested several times by police for civil disobedience likeparticipation in nonviolent protests

B. Member intentionally includes his personal expenses as business expenses for a

company trip

C. Member assures client that he will be able to offer him a good deal on house

purchase through his personal contact, but instead gets him poor deal and accepts

commission on this dealThis files has expired at 30-Jun-13

8/13/2019 CC-Ethics

50/50

Answer 18

A.

Standard I(D) misconduct refers to misconduct by member in his professional careerand not refers to cause like civil disobedience.


cc-ethics

Documents