JUN18L1ETH/E03

Question 1
Steven Burrell produces a performance presentation that does not adhere to GIPS standards and includes some
simulated data. Which of the following statements is most accurate in relation to the requirements of Standard III(D):
Performance Presentation?
a) Burrell is in violation of the Standards since use of simulated data is not allowed.
b) Burrell should produce separate reports for actual data and simulated data.
c) Burrell should disclose the use of simulated data in the presentation to the
recipients of the information.
In order to comply with Standard III(D) when not using GIPS standards, Burrell should fully disclose that results are
simulated when model results are used. The first answer is not correct since simulated data is allowed. The second
answer is not correct since there is no requirement in the Standards to produce separate reports for simulated data.

Question 2
Benny Chemicals Corp. is a client of Skyhigh Advisory Inc., which provides investment banking solutions. Benny
offers more business to Skyhigh if Skyhigh directs its clients to Zeal Brokerage firm, in which Benny has 20%
ownership. Skyhigh accepts Benny's deal but mentions about its new business arrangement in a meeting that was
held for premium clients whose transactions will be directed to Zeal. Which of the following is most accurate?
a) Skyhigh has violated the confidentiality of Benny as a client.
b) Skyhigh has not violated the standards by directing its clients to Zeal.
c) Skyhigh has violated the duties to other, nonpremium clients.
Skyhigh has violated the duties to other, nonpremium clients, as they are not made aware of Skyhigh's business deal.
This violates Standard III(B) related to fair dealing of clients.

Question 3
Which of the following is the least accurate policy of investment firms?
a) Investments can differ from the IPS when a client requests to change the
investment strategy on an ad hoc basis.
b) Firms can offer different levels of service based on the client's fees and type of
service the client needs.
c) Firms can ask the employees to disclose all their personal investments when
required.
Firms have to strictly adhere to the IPS to maintain the standards. Strict guidelines should be given to investment
advisors in case of any deviation from IPS. Deviation from IPS will lead to violation of Standard III(C).

Question 4
Jake Gore, an employee of Kenpek Investments Inc., is informed that Kenpek is one of the three contenders for the
underwriting of a leading IPO. Jake immediately calls his friend in one of the other firms that could be possibly
handling the IPO and books shares. Which of the following statements is most accurate?
a) Jake should inform his employer about his investment after booking the shares.
b) Jake should inform his employer about his investment before booking the shares.
c) Jake need not inform his employer about his investment, as he is booking the share
with another firm.
Jake should inform his employer about his investment before booking the shares and seek written approval from his
employer to make the investment to avoid violation of Standard III(B).

Question 5
Which of the following statements clearly conflicts with the recommended procedures for compliance with Standard
III(B): Fair Dealing when a firm is changing an investment recommendation?
a) Maintain a list of clients and their holdings
b) Limit the number of people involved
c) Lengthen the time frame between decision and dissemination
Members and candidates should maintain a list of clients and their holdings to understand which clients are most
impacted by changes in recommendations. They should also limit the number of people privy to the knowledge that
there is due to be a change in recommendations in order to prevent inequitable disclosure. The Code and Standards
recommend that members and candidates shorten the time frame between decision and dissemination in order to
reduce the chance of unfair dissemination to select clients.

Question 6
Which of the following is most accurate about proxy voting?
 a) Investment firms should give least priority to proxy voting, as it is not their core
activity.
b) Investment firms should not take the responsibility of proxy voting, as it involves
only nongovernance issues.
c) Investment firms should make policies for proxy voting that will contribute to clients'
economic value.
Investment firms should make policies regarding proxy voting that will ensure the best interest of the clients. This will
ensure compliance with Standard III(A) related to duties to clients.

Question 7
Which of the following is false regarding the participation or association of violations by others according to the Code
of Ethics?
a) Members should disassociate or separate from the unethical activities.
b) Inaction combined with continuing association as it is the duties of the Compliance
Department.
c) Members should stop the behavior by informing the unethical activities to the
supervisor or Compliance Department.
The first choice is incorrect. This statement is true. The second choice is correct. Inaction with continued association
with those involved in illegal or unethical conduct may be construed as participation or assistance in the illegal or
unethical conduct. The third choice is incorrect. This statement is true.

Question 8
Which of the following policies will most likely violate standards related to fair dealing for all clients?
a) Extending the time frame between the decision to make an investment
recommendation and the time the actual recommendation is disseminated.
b) Limiting the number of people involved in the decision of dissemination of
recommendations.
c) Developing and documenting trade allocation procedures, including procedures for
calculating execution prices and “partial fills” when the trades are grouped.
The time frame between the decision to make an investment recommendation and the time the actual
recommendation is disseminated should be shortened.

Question 9
Helen Walters, CFA, manages the investment for a large family trust as her only client. One of the family trust's largest
holdings is a security firm. Knowing the significant holding by her client, the security firm allows Walters to use its
research modeling software for free. This is not a violation if Walters:
a) Discloses the relationship to the client and requests a written consent.
b) Uses the software solely to benefit the family trust.
c) Does all of the above.
Both the first and second choices are required. The third choice is correct. According to Standard III (A), Loyalty,
Prudence, and Care, Walters must place the client's interest first and inform the client of any possible conflicts of
interest. Walters must use the software solely to the client's benefits.

Question 10
Clark Hutchison, a client of investment advisor Benjamin Thomas, calls Benjamin and asks him to invest in a newly
launched mutual fund that promises to return high yield. Benjamin is not optimistic about the fund's prospects, and the
client's investment policy statement (IPS) is confined only to government securities, as the investor is extremely risk
averse. Benjamin's firm strictly adheres to the IPS and does not allow advisors to entertain any ad hoc requests.
Which of the following actions of Benjamin, if true, will least likely violate the standards?
a) Benjamin follows the client's request, but does not make any change in the IPS.
b) Benjamin does not follow the client's request and educates the client, as he cannot
change the IPS without the employer's approval.
c) Benjamin follows the client's request, but modifies the IPS with the client's approval.
Benjamin can follow the client's request, but it should be updated in the IPS. Benjamin will violate Standard III(C)
related to suitability of investments.