CFA- Level 1 Ethical & Professional
Standards Exam || Questions & Answers
(Rated A+)
Standard 1: Professionalism (A) - ANSWER-1) Knowledge of the Law: Members and
candidates must understand and comply with all applicable laws, rules and regulations
(including the COE and SPC) of any body governing their professional activities. In the
event of conflict, members must comply with the more strict rule. Members may not
knowingly participate in and must dissociate from any violation of such laws, rules or
regulations.
Standard 1: Professionalism (B) - ANSWER-2) Independence and Objectivity: Members
must use reasonable care and judgment to achieve and maintain independence and
objectivity. Members and candidates must not offer, solicit, or accept any gift, benefit,
compensation or consideration that reasonably could be expected to compromise their
own or another's independence.
Standard 1: Professionalism (C) - ANSWER-3) Misrepresentation: Members and
candidates must not knowingly make any misrepresentation relating to investment
analysis, recommendations, actions or other professional activities. Prohibits
assurances or guarantees on risky investments.
Standard 1: Professionalism (D) - ANSWER-4) Misconduct: Members and Candidates
must not engage in any professional conduct involving dishonesty, fraud, or deceit or
commit any act that reflects adversely on their professional reputation, integrity or
competence.
II. Integrity of Capital Markets - ANSWER-II. Integrity of Capital Markets
a. Material Nonpublic Information
b. Market Manipulation
Standard 2: Integrity of Capital Markets (A)
Material nonpublic information - ANSWER-Material nonpublic information. Members and
candidates who possess material nonpublic information that could affect the value of an
investment must not act or cause others to act on the information.
Standard 2: Integrity of Capital Markets (B)
Market Manipulation - ANSWER-Market Manipulation. Members and candidates must
not engage in practices that distort prices or artificially inflate trading volume with the
intent to mislead market participants.
III. Duties to Clients - ANSWER-III. Duties to Clients
a. Loyalty, Prudence, and Care
, b. Fair Dealing
c. Suitability
d. Performance Presentation
Standard 3: Duties to Clients (A)
Loyalty, Prudence and Care. - ANSWER-Loyalty, Prudence and Care. Members have a
duty of loyalty to their clients and must act with reasonable care and exercise prudent
judgment. Members must act for the benefit of their clients and place their clients'
interests before their employer's or their own interests.
Soft Dollars - ANSWER-Practice of paying higher brokerage fees for the purpose of
securing goods/services (research reports) from the brokerage firm, without an
corresponding benefit to the client
Best Execution - ANSWER-Trading process maximized client value
Standard 3: Duties to Clients (B)
Fair Dealing - ANSWER-Fair Dealing. Members and candidates must deal fairly and
objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action or engaging in other professional activities.
Standard 3: Duties to Clients (C)
Suitability - ANSWER-Suitability.
1) Members and Candidates must make a reasonable inquiry into a client's investment
experience, objectives and financial constraints prior to making any investment
recommendation or taking investment action and must reassess regularly. Further, they
must determine than an investment is suitable to the client's situation, written objectives,
mandates and constraints before making an investment recommendation or taking
investment action.
2) When managing a portfolio to a specific strategy, mandate or style, members must
make only investment recommendations or take investment actions that are consistent
with the stated objectives and constraints of the portfolio.
Suitability - Unsolicited Trade Requests from Clients - ANSWER-Explain the impact on
the total portfolio and why the investment may deviate from the IPS. In cases where the
request deviates, the IPS should be updated.
If client declined to modify IPS, candidate needs to consider the overall relationship.
Standard 3: Duties to Clients (D)
Performance Presentation - ANSWER-Performance Presentation. Members and
candidates must make reasonable efforts to ensure that performance information is fair,
accurate and complete.
Standard 3: Duties to Clients (E)
Standards Exam || Questions & Answers
(Rated A+)
Standard 1: Professionalism (A) - ANSWER-1) Knowledge of the Law: Members and
candidates must understand and comply with all applicable laws, rules and regulations
(including the COE and SPC) of any body governing their professional activities. In the
event of conflict, members must comply with the more strict rule. Members may not
knowingly participate in and must dissociate from any violation of such laws, rules or
regulations.
Standard 1: Professionalism (B) - ANSWER-2) Independence and Objectivity: Members
must use reasonable care and judgment to achieve and maintain independence and
objectivity. Members and candidates must not offer, solicit, or accept any gift, benefit,
compensation or consideration that reasonably could be expected to compromise their
own or another's independence.
Standard 1: Professionalism (C) - ANSWER-3) Misrepresentation: Members and
candidates must not knowingly make any misrepresentation relating to investment
analysis, recommendations, actions or other professional activities. Prohibits
assurances or guarantees on risky investments.
Standard 1: Professionalism (D) - ANSWER-4) Misconduct: Members and Candidates
must not engage in any professional conduct involving dishonesty, fraud, or deceit or
commit any act that reflects adversely on their professional reputation, integrity or
competence.
II. Integrity of Capital Markets - ANSWER-II. Integrity of Capital Markets
a. Material Nonpublic Information
b. Market Manipulation
Standard 2: Integrity of Capital Markets (A)
Material nonpublic information - ANSWER-Material nonpublic information. Members and
candidates who possess material nonpublic information that could affect the value of an
investment must not act or cause others to act on the information.
Standard 2: Integrity of Capital Markets (B)
Market Manipulation - ANSWER-Market Manipulation. Members and candidates must
not engage in practices that distort prices or artificially inflate trading volume with the
intent to mislead market participants.
III. Duties to Clients - ANSWER-III. Duties to Clients
a. Loyalty, Prudence, and Care
, b. Fair Dealing
c. Suitability
d. Performance Presentation
Standard 3: Duties to Clients (A)
Loyalty, Prudence and Care. - ANSWER-Loyalty, Prudence and Care. Members have a
duty of loyalty to their clients and must act with reasonable care and exercise prudent
judgment. Members must act for the benefit of their clients and place their clients'
interests before their employer's or their own interests.
Soft Dollars - ANSWER-Practice of paying higher brokerage fees for the purpose of
securing goods/services (research reports) from the brokerage firm, without an
corresponding benefit to the client
Best Execution - ANSWER-Trading process maximized client value
Standard 3: Duties to Clients (B)
Fair Dealing - ANSWER-Fair Dealing. Members and candidates must deal fairly and
objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action or engaging in other professional activities.
Standard 3: Duties to Clients (C)
Suitability - ANSWER-Suitability.
1) Members and Candidates must make a reasonable inquiry into a client's investment
experience, objectives and financial constraints prior to making any investment
recommendation or taking investment action and must reassess regularly. Further, they
must determine than an investment is suitable to the client's situation, written objectives,
mandates and constraints before making an investment recommendation or taking
investment action.
2) When managing a portfolio to a specific strategy, mandate or style, members must
make only investment recommendations or take investment actions that are consistent
with the stated objectives and constraints of the portfolio.
Suitability - Unsolicited Trade Requests from Clients - ANSWER-Explain the impact on
the total portfolio and why the investment may deviate from the IPS. In cases where the
request deviates, the IPS should be updated.
If client declined to modify IPS, candidate needs to consider the overall relationship.
Standard 3: Duties to Clients (D)
Performance Presentation - ANSWER-Performance Presentation. Members and
candidates must make reasonable efforts to ensure that performance information is fair,
accurate and complete.
Standard 3: Duties to Clients (E)
