CFA - Mock exam Updated Questions And Answers Rated 100%

Which of the following is a governance issue? A. Tax transparency B. Health and safety C. Working conditions - ANS A is correct because "[e]xamples of the definition and scope of ESG issues can be illustrated by the two widely-referenced organisations...Tax Transparency [falls under the umbrella of] Governance". B is incorrect because "[e]xamples of the definition and scope of ESG issues can be illustrated by the two widely-referenced organisations...Health & Safety [falls under the umbrella of] Social" by FTSE Russell. C is incorrect because "[e]xamples of the definition and scope of ESG issues can be illustrated by the two widely-referenced organisations...Working conditions [is an example of] Social" in the taxonomy by PRI. 1-Introduction to ESG Investing 1.1.1 Triple bottom line accounting takes into account a company's financial performance and its: A. social and governance factors. B. environmental and social factors. C. environmental and governance factors. - ANS B is correct because "[t]he TBL (Triple bottom line) accounting theory expands the traditional accounting framework focused only on profit to include two other performance areas: the social and environmental impacts of a company." A is incorrect because "[t]he TBL (Triple bottom line) accounting theory expands the traditional accounting framework focused only on profit to include two other performance areas: the social and environmental impacts of a company." C is incorrect because "[t]he TBL [Triple Bottom Line] accounting theory expands the traditional accounting framework focused only on profit to include two other performance areas: the social and environmental impacts of a company." 1-Introduction to ESG Investing 1.1.2 Which of the following investment styles often uses negative screening? A. Impact investing B. Thematic investing C. Faith-based investing - ANS C is correct because "faith-based investment refers to investing in line with certain principles, often using negative screening to avoid investing in companies whose products and services are deemed morally objectionable by the investor or certain religions, international declarations, conventions and voluntary agreements." A is incorrect because "impact investing refers to investments made with the specific intent of generating positive, measurable social and/or environmental impact alongside a financial return." Therefore, impact investing uses the positive screening approach. B is incorrect because "thematic investment refers to selecting companies that fall under a sustainability-related theme, such as clean-tech, sustainable agriculture, healthcare or climate change mitigation." Therefore, thematic investing uses the positive screening approach. 1-Introduction to ESG Investing 1.1.2 Negative externalities: A. result from internalization of costs. B. result in private costs that are higher than societal costs. C. result in societal costs that are not reflected in the prices of goods. - ANS C is correct because "[t]he term externalities refers to situations where the production or consumption of goods and services creates costs or benefits to others that are not reflected in the prices charged for them...when externalities are negative, private costs are lower than societal costs...leading to 'market failures'...[i]nternalisation refers to all measures (public or private) to ensure that externalities become reflected in the prices of commercial goods and services." A is incorrect because "...governments should tax polluters an amount equivalent to the cost of the harm incurred by others. Such a tax would yield the market outcome that would have prevailed with adequate internalisation of all costs by polluters. Internalisation refers to all measures (public or private) to ensure that externalities become reflected in the prices of commercial goods and services." Hence, internalization of costs would eliminate negative externalities. B is incorrect because "when externalities are negative, private costs are lower than societal costs, r