CFA Exam 1 || With Questions &
Answers (100% Accurate)
Which of the following definitions of a firm would violate GIPS?
A. Investment firm that has been in existence for less than five years.
B. Regional branch of an investment management firm marketed under the
name of its parent.
C. Entity registered with the national regulator that oversees its investment
management activities. - ANSWER-B The definition of a firm for GIPS-compliant
performance presentation should include
all geographical offices marketed under the same name brand.
If a country has regulations in place that conflict with GIPS, firms that wish to
claim GIPS compliance:
A. may not do so because GIPS do not permit exceptions or partial compliance.
B. must establish a subsidiary in a location where local law does not conflict
with GIPS.
C. must comply with local regulations and disclose the nature of the conflict in
the presentation. - ANSWER-C Firms must always comply with the laws and regulations
of the country in which they
reside. In cases where local regulations conflict with GIPS, a firm can still claim GIPS
compliance if they disclose the conflict fully in an otherwise compliant presentation.
Which of the following includes only sections of the: Global Investment
Performance Standards?
A. Disclosure, Public Equity, Presentation and Reporting.
B. Real Estate, Calculation Methodology, Fundamentals of Compliance.
C. Input Data, Composite Construction, Wrap Fee/Speculative Margin
Account (SMA) Portfolios. - ANSWER-B The nine major sections of GIPS are (0)
Fundamentals of Compliance; (1) Input Data;
(2) Calculation Methodology; (3) Composite Construction; (4) Disclosure;
(5) Presentation and Reporting; (6) Real Estate; (7) Private Equity; and (8) Wrap Fee/
Separately Managed Account (SMA) Portfolios.
An analyst is evaluating the degree of competition in an industry and compiles
the following information:
• Few significant barriers to entry or exit exist.
• Firms in the industry produce slightly differentiated products.
• Each firm faces a demand curve that is largely unaffected by the actions of
other individual firms in the industry.
The analyst should characterize the competitive structure of this industry as:
A. oligopoly.
B. monopoly.
, C. monopolistic competition - ANSWER-C Both oligopoly and monopolistic competition
are consistent with firms that produce
slightly differentiated products. However, with few significant barriers to entry and
little interdependence among competitors, the industry does not fit the definition of an
oligopoly and would be best characterized as monopolistic competition.
Which of the following statements about the behavior of firms in a perfectly
competitive market is least accurate?
A. A firm experiencing economic losses in the short run will continue to
operate if its revenues are greater than its variable costs.
B. A firm that is producing less than the quantity for which marginal cost
equals the market price would lose money by increasing production.
C. If firms are earning economic profits in the short run, new firms will enter
the market and reduce economic profits to zero in the long run. - ANSWER-B A firm that
is producing more than the quantity where its marginal revenue (the market
price in perfect competition) is equal to its marginal cost is losing money on sales of
additional units. A firm producing where marginal cost is less than price is foregoing
additional profit by not increasing production. The other responses accurately describe
characteristics of firms in perfectly competitive markets.
Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company
and observes that inventories of unsold goods appear unusually large. From the
CFO, he learns that a recent increase in returned items may result in earnings
for the current quarter that are below analysts' estimates. Based on his visit,
Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the
Standard concerning material nonpublic information?
A. Yes.
B. No, because the information he used is not material.
C. No, because his actions are consistent with the mosaic theory. - ANSWER-A The
statement from the CFO about the current quarter's earnings is material nonpublic
information. Ingw violated Standard II(A) Material Nonpublic Information by acting or
causing others to act on it.
Green Brothers, an emerging market fund manager, has two of its subsidiaries
simultaneously buy and sell emerging market stocks. In its marketing literature,
Green Brothers cites the overall emerging market volume as evidence of the
market's liquidity. As a result of its actions, more investors participate in the
emerging markets fund. Green Brothers most likely:
A. did not violate the Code and Standards.
B. violated the Standard regarding market manipulation.
C. violated the Standard regarding performance presentation. - ANSWER-B The intent
of Green Brothers' actions is to manipulate the appearance of market
liquidity in order to attract investment to its own funds. The increased trading activity
was not based on market fundamentals or an actual trading strategy to benefit
investors.
Answers (100% Accurate)
Which of the following definitions of a firm would violate GIPS?
A. Investment firm that has been in existence for less than five years.
B. Regional branch of an investment management firm marketed under the
name of its parent.
C. Entity registered with the national regulator that oversees its investment
management activities. - ANSWER-B The definition of a firm for GIPS-compliant
performance presentation should include
all geographical offices marketed under the same name brand.
If a country has regulations in place that conflict with GIPS, firms that wish to
claim GIPS compliance:
A. may not do so because GIPS do not permit exceptions or partial compliance.
B. must establish a subsidiary in a location where local law does not conflict
with GIPS.
C. must comply with local regulations and disclose the nature of the conflict in
the presentation. - ANSWER-C Firms must always comply with the laws and regulations
of the country in which they
reside. In cases where local regulations conflict with GIPS, a firm can still claim GIPS
compliance if they disclose the conflict fully in an otherwise compliant presentation.
Which of the following includes only sections of the: Global Investment
Performance Standards?
A. Disclosure, Public Equity, Presentation and Reporting.
B. Real Estate, Calculation Methodology, Fundamentals of Compliance.
C. Input Data, Composite Construction, Wrap Fee/Speculative Margin
Account (SMA) Portfolios. - ANSWER-B The nine major sections of GIPS are (0)
Fundamentals of Compliance; (1) Input Data;
(2) Calculation Methodology; (3) Composite Construction; (4) Disclosure;
(5) Presentation and Reporting; (6) Real Estate; (7) Private Equity; and (8) Wrap Fee/
Separately Managed Account (SMA) Portfolios.
An analyst is evaluating the degree of competition in an industry and compiles
the following information:
• Few significant barriers to entry or exit exist.
• Firms in the industry produce slightly differentiated products.
• Each firm faces a demand curve that is largely unaffected by the actions of
other individual firms in the industry.
The analyst should characterize the competitive structure of this industry as:
A. oligopoly.
B. monopoly.
, C. monopolistic competition - ANSWER-C Both oligopoly and monopolistic competition
are consistent with firms that produce
slightly differentiated products. However, with few significant barriers to entry and
little interdependence among competitors, the industry does not fit the definition of an
oligopoly and would be best characterized as monopolistic competition.
Which of the following statements about the behavior of firms in a perfectly
competitive market is least accurate?
A. A firm experiencing economic losses in the short run will continue to
operate if its revenues are greater than its variable costs.
B. A firm that is producing less than the quantity for which marginal cost
equals the market price would lose money by increasing production.
C. If firms are earning economic profits in the short run, new firms will enter
the market and reduce economic profits to zero in the long run. - ANSWER-B A firm that
is producing more than the quantity where its marginal revenue (the market
price in perfect competition) is equal to its marginal cost is losing money on sales of
additional units. A firm producing where marginal cost is less than price is foregoing
additional profit by not increasing production. The other responses accurately describe
characteristics of firms in perfectly competitive markets.
Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company
and observes that inventories of unsold goods appear unusually large. From the
CFO, he learns that a recent increase in returned items may result in earnings
for the current quarter that are below analysts' estimates. Based on his visit,
Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the
Standard concerning material nonpublic information?
A. Yes.
B. No, because the information he used is not material.
C. No, because his actions are consistent with the mosaic theory. - ANSWER-A The
statement from the CFO about the current quarter's earnings is material nonpublic
information. Ingw violated Standard II(A) Material Nonpublic Information by acting or
causing others to act on it.
Green Brothers, an emerging market fund manager, has two of its subsidiaries
simultaneously buy and sell emerging market stocks. In its marketing literature,
Green Brothers cites the overall emerging market volume as evidence of the
market's liquidity. As a result of its actions, more investors participate in the
emerging markets fund. Green Brothers most likely:
A. did not violate the Code and Standards.
B. violated the Standard regarding market manipulation.
C. violated the Standard regarding performance presentation. - ANSWER-B The intent
of Green Brothers' actions is to manipulate the appearance of market
liquidity in order to attract investment to its own funds. The increased trading activity
was not based on market fundamentals or an actual trading strategy to benefit
investors.
