YOUNG21975

1. The Code of Ethics explicitly requires covered persons to:

a. promote democratic capitalism
b. uphold the rules governing capital markets
c. report suspected violations to CFA Institute
d. report suspected violations to regulatory authorities

2. Members and candidates must:

a. Endorse the principles of sound corporate governance
b. Foster the expansion of regulatory oversight in the investment industry
c. Strive to maintain and improve the competence of other investment professionals
d. Ensure that investment management firms vote proxies in the shareholders’ best interest

3. In the event that the Code and Standards are stricter than the applicable law, covered person must understand and comply with:
a. Applicable law
b. The Code and Standards

4. A covered person might be excused for assisting in a violation of applicable regulations if she:
a. did not know the regulations
b. knew the regulations but did not believe they applied
c. knew the regulations but was unaware a violation was taking place
d. knew the regulations but acted on written instructions from her employer

5. The most accurate statement about gifts is that members and candidates must not solicit or accept any gift that could reasonably be expected to:a. create an obligation to reciprocate
b. exceed customary business practice
c. radically change their standard of living
d. compromise their independence and objectivity

6. Under the provision of the Standards governing misconduct, covered persons must not commit any act that reflects adversely on their:a. investment performance
b. loyalty to their employer
c. professional reputation, integrity, or competence
d. investment analysis, recommendations, and actions

7. Non-public information is material if it:
a. forms a pattern or picture
b. violates client confidentiality
c. would affect the price of a security
d. has not been fully disclosed to all market participants

8. Members and candidates must not engages in practices that:
a. exploit asymmetrical information
b. achieve gains at the expenses of other market participants
c. contribute to excessive trading volume in volatile markets
d. distort prices with the intent to mislead market participants

9. The duty of loyalty, prudence, and care requires:a. developing and maintaining appropriate records
b. acting with reasonable care and exercising prudent judgment
c. giving an employer of the advantage of one’s skills and abilities
d. obtaining written consent from all parties involved in a transaction


10. Fair dealing does not require covered persons to:
a. provide the same level of service to all clients
b. monitor the objective equitability of trading processes
c. liquidate securities held in multiple accounts in an orderly and equitable manner
d. proportionally allocate securities among discretionary accounts managed in the same investment strategy or style

11. A covered person in an advisory relationship should inquire about the client’s total portfolio in order to:a. determine the client’s level of investment experience
b. estimate the clients needs for current income over the planning horizon
c. avoid contributing to an undue concentration of risk in the client’s assets
d. identify other areas where the client would benefit from professional   advice

12. When covered persons communicate investment performance information, they must make reasonable efforts to ensure that it:a. applies on a firm-wide basis
b. is fair, accurate, and complete
c. complies with the Global Investment Performance Standards (GIPS)
d. discloses the basic format and general principles of the firm’s investment process

13. the requirement to keep client information confidential does not apply when it:
a. concerns illegal activity
b. has been reported in public media
c. affects the price of a publicly traded security
d. concerns a former rather than an existing client

14. The most accurate statement about accepting additional compensation from external sources is that members and candidates:
a. must not directly compete with their employer
b. must obtain written consent from all parties involved
c. must use their own data sources and analytical models
d. must not allow their outside work to interfere with their regular work

15. Supervisors who are CFA charterholders must:a. inform their employees of the Code and Standards
b. conduct regular evaluations of employee’s performance
c. monitor their employees’ communications with trading partners
d. make reasonable efforts to detect and prevent regulatory violations by their  employees

16. Investment analyses and recommendations must be based upon:
a. certainty, not scenarios or projections
b. original research, not secondary sources
c. reliable, up-to-date evidence, not prejudgments
d. publicly available information, not proprietary databases or models

17. Members and candidates must disclose to clients and prospective clients:a. proprietary models for screening and selecting investments
b. the basic format and general principles of the investment process
c. research-based forecasts of changes in macroeconomic indicators
d. the firm’s history of regulatory violations, including current investigations

18. Investment professionals cannot initiate transactions for themselves unless:a. the investment is unsuitable for their clients
b. clients and employers have had a fair chance to invest
c. the professionals are the beneficial owner of the account
d. the Code and Standards are stricter than applicable law and regulation

19. The most accurate statement about referral fees is that they:a. must be disclosed only to prospective clients
b. must be disclosed if the client asks about them
c. are the employer’s trade secrets and must be kept confidential
d. must be disclosed to employers, clients and prospective clients

20. Earning the CFA designation signifies:a. superior investment insight
b. higher risk-adjusted returns
c. completion of a rigorous program
d. a commitment to active portfolio management


SOURCE: CFAI L3 candidate readings