CFA Level 2 practice questions, page 7 of 22, with answer review and explanations.
Question 31
Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. Instruction 1: Limit risk by avoiding stock options. Instruction 2: Above all, ensure that our clients' capital is kept safe. Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. Instruction 4: Remember that every investment must have the quality to stand on its own. Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the "perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI (B) Priority of Transactions." Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice. When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. Borchard proposes three methods for dealing with the trading error. Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. When updating the proxy-voting policy to conform to CFA Institute recommendations, which of the following recommendations is least appropriate for Blanchard to adopt?
Determine the economic impact of non-routine proxy votes.
Follow the same proxy-voting procedures regardless of the nature of the proposal.
If the proxy voter's preference differs from the preference of a client who has delegated his voting powers, go with the client's preference.
Question 32
Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. Instruction 1: Limit risk by avoiding stock options. Instruction 2: Above all, ensure that our clients' capital is kept safe. Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. Instruction 4: Remember that every investment must have the quality to stand on its own. Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the "perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI (B) Priority of Transactions." Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice. When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. Borchard proposes three methods for dealing with the trading error. Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. A CFA charterholder who wishes to follow Standard VI(B) Priority of Transactions must:
maintain loyalty to pension-plan beneficiaries.
limit IPO investments in client and personal accounts.
give both clients and employers preference over the charterholder's own accounts.
Question 33
Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. Instruction 1: Limit risk by avoiding stock options. Instruction 2: Above all, ensure that our clients' capital is kept safe. Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. Instruction 4: Remember that every investment must have the quality to stand on its own. Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the "perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI (B) Priority of Transactions." Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice. When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. Borchard proposes three methods for dealing with the trading error. Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. Are Thaddeus Baldwin's statements on the soft dollar standards correct?
Both statements are correct.
Only Statement I is correct.
Only Statement 2 is correct.
Question 34
Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. Instruction 1: Limit risk by avoiding stock options. Instruction 2: Above all, ensure that our clients' capital is kept safe. Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. Instruction 4: Remember that every investment must have the quality to stand on its own. Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the "perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI (B) Priority of Transactions." Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice. When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. Borchard proposes three methods for dealing with the trading error. Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. It Walters wants the manual to satisfy the requirements and recommendations of the Code and Standards, which of the following instructions is least appropriate to include in the section on fair dealing?
Whenever possible, disseminate investment recommendations to all clients at the same time.
Execute all clients1 requested trades promptly and without comment, regardless of the company's opinion on the stock being traded.
Members of the investment-policy committee should not discuss possible changes in investment recommendations with anyone else in the firm until after an official decision has been made.
Question 35
Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions. Instruction 1: Limit risk by avoiding stock options. Instruction 2: Above all, ensure that our clients' capital is kept safe. Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions. Instruction 4: Remember that every investment must have the quality to stand on its own. Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the "perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI (B) Priority of Transactions." Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements: Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research. Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not. During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice. When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory. Borchard proposes three methods for dealing with the trading error. Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss. Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error. Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis. Which method for dealing with the trading error is most consistent with the Code and Standards?