CFA Investment Foundations Mock Exam Questions with
all Correct & 100% Verified Answers |Actual Complete
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Proprietary trading is most likely carried out by:
dealers.
brokers.
settlement agents. ✔Correct Answer-Dealers,
Dealers act as principals, so they are deemed proprietary traders. Dealers trade on behalf of
their own accounts and use their own capital to make markets. B is incorrect. Brokers arrange
deals between the buyers and the sellers. They do not trade for their own accounts. C is
incorrect. Settlement agents provide services to clear and settle deals after they have been
negotiated.
Q. Globalisation in the investment industry is associated with the growing tendency of investors:
to look outside their local market for investment opportunities.
to prefer to hedge the risks of foreign investment, such as currency risk.
in smaller countries to compete more effectively with those in larger countries ✔Correct
Answer-to look outside their local market for investment opportunities.
A is correct. Globalisation occurs as investors develop a growing tendency to look outside their
local markets for better portfolio diversification and higher returns. B is incorrect. The decision
to hedge various risks will depend on the individual investor's needs and beliefs, not the extent
of globalisation. C is incorrect. Globalisation gives all investors more opportunities but does not
favour one group over another.
The goal of all economic systems is to:
efficiently allocate scarce resources to their most productive uses.
produce enough goods and services to satisfy the desires of all consumers.
support government spending on public services, such as education, defence, and
infrastructure. ✔Correct Answer-efficiently allocate scarce resources to their most productive
uses
The goal of all economic systems is the efficient allocation of scarce resources to their most
productive uses. People have an unlimited desire for goods and services, but resources are
limited. Economic systems must address three questions: (1) What should be produced? (2)
How should it be produced? (3) Who should receive what is produced? The goal is to answer
these questions in a way that best satisfies consumers' needs
An individual who helps buyers and sellers find and trade with one another is a(n):
,broker.
dealer.
auditor. ✔Correct Answer-Broker
Securities regulations are created by:
legislative bodies.
individual investors.
government agencies. ✔Correct Answer-Government Agencies
The CFA Institute Code of Ethics requires members to:
protect clients' interests at all times and in all situations.
encourage competitors to increase their levels of competence.
ensure investment recommendations are similar across an industry. ✔Correct Answer-
encourage competitors to increase their levels of competence.
An employee is assigned a complicated task by her supervisor but believes she does not have
the technical skills to carry it out. The employee should:
refuse to carry out the assignment.
carry out the work as best as she can.
get a co-worker to do it and take credit for the work. ✔Correct Answer-Refuse to carry out the
assignment
Investment advisers have an ethical obligation to:
protect their own interests.
exercise independent judgment.
sell products with the highest fees. ✔Correct Answer-Exercise independent judgment
Based on the CFA Institute Standards of Practice, investment advisers should manage a client's
investment portfolio the same way they would manage:
their own assets.
other client accounts.
the account if managed by a competitor. ✔Correct Answer-Their own assets
During a job interview, a potential employer described the CFA Institute Code of Ethics as "a set
of principles establishing rules governing ethical behaviour required of investment professionals
toward their clients and employers". Does this description fully capture the Code of Ethics'
requirement to act in an ethical manner?
,Yes
No, the Code of Ethics also requires ethical behaviour when dealing with potential clients
No, the Code of Ethics also requires ethical interaction with all capital market participants
✔Correct Answer-No, the code of ethics also require ethical interaction with all capital market
participants
Regulators often seek public consultation prior to the implementation of new regulations in
order to:
educate consumers and service providers on the new rules.
improve the final rules by undertaking a cost-benefit analysis.
ensure that the new rules are favourable to those likely to be affected. ✔Correct Answer-
Improve the rules by undertaking a cost-benefit analysis
Regulations prohibiting front running are types of:
trading rules.
operational rules.
sales practice rules. ✔Correct Answer-Trading rules
Regulators help capital markets do all of the following except:
reduce investment risk.
allocate capital to productive use.
ensure investors are treated equally. ✔Correct Answer-Ensure investors are treated equally
Net capital rules are put in place to prevent all of the following except:
global financial contagion.
losses experienced by firms.
the use of excessive leverage. ✔Correct Answer-losses experienced by firms
The processes by which regulations are developed:
are similar across the globe.
vary widely from informal to formal.
are standardised across the various jurisdictions within a country. ✔Correct Answer-Vary
widely from informal to formal
A store owner recently turned down a substantial cash offer for his store and the land on which
the store is located. Although the store owner considered the offer to be fair, he wanted to
continue running the business. This year, his business has incurred costs for merchandise sold;
wages paid to workers, including his own salary; utilities; and property taxes. When determining
, the business's accounting profit for the period, he is most likely to correctly exclude which of
the following:
his own salary.
property taxes.
the opportunity cost of the land and store. ✔Correct Answer-The opportunity cost of the land
and the store
A company is in the large shipbuilding industry with most of its operating costs fixed. The
company has not used any debt to finance its operations. The operating leverage for such a firm
is most likely:
low.
high.
zero. ✔Correct Answer-High
The notion of scarce economic resources:
applies only to undeveloped nations.
gives rise to choices determined by opportunity costs.
applies when the amount of freely available goods exceeds the amount people desire.
✔Correct Answer-Give rise to choices determined by opportunity costs
The crowding out effect will most likely lead to higher:
tax revenues.
interest rates.
private investment. ✔Correct Answer-Interest rates
Which of the following actions taken by a central bank is best described as expansionary?
Increasing its policy rate
Purchasing government bonds
Increasing the reserve requirement ✔Correct Answer-Purchasing government bonds
A government implements a policy that encourages consumers and businesses to increase
spending and investment. Those who benefit from this additional spending, in turn, increase
their own spending. The mechanism by which the initial increase in spending increases total
spending by a greater amount is known as the:
multiplier effect.
inflationary effect.
financial contagion effect. ✔Correct Answer-Multiplier effect
all Correct & 100% Verified Answers |Actual Complete
Update |Already Graded A+
Proprietary trading is most likely carried out by:
dealers.
brokers.
settlement agents. ✔Correct Answer-Dealers,
Dealers act as principals, so they are deemed proprietary traders. Dealers trade on behalf of
their own accounts and use their own capital to make markets. B is incorrect. Brokers arrange
deals between the buyers and the sellers. They do not trade for their own accounts. C is
incorrect. Settlement agents provide services to clear and settle deals after they have been
negotiated.
Q. Globalisation in the investment industry is associated with the growing tendency of investors:
to look outside their local market for investment opportunities.
to prefer to hedge the risks of foreign investment, such as currency risk.
in smaller countries to compete more effectively with those in larger countries ✔Correct
Answer-to look outside their local market for investment opportunities.
A is correct. Globalisation occurs as investors develop a growing tendency to look outside their
local markets for better portfolio diversification and higher returns. B is incorrect. The decision
to hedge various risks will depend on the individual investor's needs and beliefs, not the extent
of globalisation. C is incorrect. Globalisation gives all investors more opportunities but does not
favour one group over another.
The goal of all economic systems is to:
efficiently allocate scarce resources to their most productive uses.
produce enough goods and services to satisfy the desires of all consumers.
support government spending on public services, such as education, defence, and
infrastructure. ✔Correct Answer-efficiently allocate scarce resources to their most productive
uses
The goal of all economic systems is the efficient allocation of scarce resources to their most
productive uses. People have an unlimited desire for goods and services, but resources are
limited. Economic systems must address three questions: (1) What should be produced? (2)
How should it be produced? (3) Who should receive what is produced? The goal is to answer
these questions in a way that best satisfies consumers' needs
An individual who helps buyers and sellers find and trade with one another is a(n):
,broker.
dealer.
auditor. ✔Correct Answer-Broker
Securities regulations are created by:
legislative bodies.
individual investors.
government agencies. ✔Correct Answer-Government Agencies
The CFA Institute Code of Ethics requires members to:
protect clients' interests at all times and in all situations.
encourage competitors to increase their levels of competence.
ensure investment recommendations are similar across an industry. ✔Correct Answer-
encourage competitors to increase their levels of competence.
An employee is assigned a complicated task by her supervisor but believes she does not have
the technical skills to carry it out. The employee should:
refuse to carry out the assignment.
carry out the work as best as she can.
get a co-worker to do it and take credit for the work. ✔Correct Answer-Refuse to carry out the
assignment
Investment advisers have an ethical obligation to:
protect their own interests.
exercise independent judgment.
sell products with the highest fees. ✔Correct Answer-Exercise independent judgment
Based on the CFA Institute Standards of Practice, investment advisers should manage a client's
investment portfolio the same way they would manage:
their own assets.
other client accounts.
the account if managed by a competitor. ✔Correct Answer-Their own assets
During a job interview, a potential employer described the CFA Institute Code of Ethics as "a set
of principles establishing rules governing ethical behaviour required of investment professionals
toward their clients and employers". Does this description fully capture the Code of Ethics'
requirement to act in an ethical manner?
,Yes
No, the Code of Ethics also requires ethical behaviour when dealing with potential clients
No, the Code of Ethics also requires ethical interaction with all capital market participants
✔Correct Answer-No, the code of ethics also require ethical interaction with all capital market
participants
Regulators often seek public consultation prior to the implementation of new regulations in
order to:
educate consumers and service providers on the new rules.
improve the final rules by undertaking a cost-benefit analysis.
ensure that the new rules are favourable to those likely to be affected. ✔Correct Answer-
Improve the rules by undertaking a cost-benefit analysis
Regulations prohibiting front running are types of:
trading rules.
operational rules.
sales practice rules. ✔Correct Answer-Trading rules
Regulators help capital markets do all of the following except:
reduce investment risk.
allocate capital to productive use.
ensure investors are treated equally. ✔Correct Answer-Ensure investors are treated equally
Net capital rules are put in place to prevent all of the following except:
global financial contagion.
losses experienced by firms.
the use of excessive leverage. ✔Correct Answer-losses experienced by firms
The processes by which regulations are developed:
are similar across the globe.
vary widely from informal to formal.
are standardised across the various jurisdictions within a country. ✔Correct Answer-Vary
widely from informal to formal
A store owner recently turned down a substantial cash offer for his store and the land on which
the store is located. Although the store owner considered the offer to be fair, he wanted to
continue running the business. This year, his business has incurred costs for merchandise sold;
wages paid to workers, including his own salary; utilities; and property taxes. When determining
, the business's accounting profit for the period, he is most likely to correctly exclude which of
the following:
his own salary.
property taxes.
the opportunity cost of the land and store. ✔Correct Answer-The opportunity cost of the land
and the store
A company is in the large shipbuilding industry with most of its operating costs fixed. The
company has not used any debt to finance its operations. The operating leverage for such a firm
is most likely:
low.
high.
zero. ✔Correct Answer-High
The notion of scarce economic resources:
applies only to undeveloped nations.
gives rise to choices determined by opportunity costs.
applies when the amount of freely available goods exceeds the amount people desire.
✔Correct Answer-Give rise to choices determined by opportunity costs
The crowding out effect will most likely lead to higher:
tax revenues.
interest rates.
private investment. ✔Correct Answer-Interest rates
Which of the following actions taken by a central bank is best described as expansionary?
Increasing its policy rate
Purchasing government bonds
Increasing the reserve requirement ✔Correct Answer-Purchasing government bonds
A government implements a policy that encourages consumers and businesses to increase
spending and investment. Those who benefit from this additional spending, in turn, increase
their own spending. The mechanism by which the initial increase in spending increases total
spending by a greater amount is known as the:
multiplier effect.
inflationary effect.
financial contagion effect. ✔Correct Answer-Multiplier effect
