Level I R03 Guidance for

Standards I–VII
Test Code: L1 R03 GUID Q-Bank 2020
Number of questions: 93

Question Q-Code: L1-ES-GUID-001

1 Cory Griffin, a Level II candidate, works as an investment advisor for Trust Mutual Fund. He specializes in
commodities and informs his clients that the energy prices are going to rise due to political turmoil in the Middle East.
He informs his broker at Xylan Mercantile to invest long in oil futures for him. Griffin should:

A) disclose his personal transaction.

B) manage his personal account separately.
C) refrain from any personal transaction as long as he is employed by Trust.

Question Q-Code: L1-ES-GUID-002

2 Klaus Matthias, CFA, works at Meinhard Capital, an investment and brokerage firm where he supervises a team that
develops and markets fixed income funds to cater to different high net worth clients internationally. Recently, due to
the popularity of Islamic products he has asked his team to develop an Islamic Fund to market to his clients in the
Middle East. The team includes three individuals who are all candidates in the CFA Program. After some research, they
come up with a product that seems marketable to this specific niche. Before distribution of the fund, Matthias is
worried whether the Fund is suitable for all Islamic investors. Matthias should:

A) not launch the fund because it is not suitable for all Islamic investors.
B) launch the fund but clearly acknowledge areas where the fund may not be suitable for certain clients.
C) launch the fund because there will always be differences in cultural and religious laws around the world.

Question Q-Code: L1-ES-GUID-003

3 Nargis Dilawez, CFA, works as an independent research analyst and also uses various online social media sites to
make announcements, recommendations and analysis of various securities. She is a resident of Country S where
there is no law against posting of comments and opinions, but since her views are read globally she is worried about
regulators in certain countries who impose restrictions and requirements on online communications. According to the
Standards, Dilawez should:

A) continue to post her comments since her resident country does not impose any regulatory restrictions.
B) discontinue immediately and wait for the restrictions to ease in the nonresident countries.
C) seek guidance from appropriate, knowledgeable, and reliable sources to diligently follow legal and regulatory trends
affecting her professional responsibilities.

Question Q-Code: L1-ES-GUID-004

4 Wynona Fritz works for Brady Brokerage as a fixed income analyst. She is also registered to take the Level III
examination. After analyzing both the qualitative and quantitative aspects of Saber Inc., Fritz concludes that the
company is not correctly rated by the credit rating agency and should be downgraded due to the leverage in its capital
structure. A senior manager from the investment banking department informs her that Saber Inc. has chosen Brady
Brokerage as one of the firms to underwrite and market their new bond issue. Fritz is concerned that her report will
cause the company to terminate their relationship with Brady and affect her employment. According to the Standards,
Fritz should:

A) dissociate from the report, the underwriting, and the client.

B) be independent and objective in her analysis based solely on the company’s fundamentals.
C) change her recommendation about the credit rating to remove the conflict.

Question Q-Code: L1-ES-GUID-005

5 Jessica Morales works as an investment adviser for Chris Crosby, a middle-aged, risk averse investor. As per the
investment policy statement, Morales invests in low-risk, high-income equities for Crosby keeping in mind his current
 needs and objectives. Recently Crosby’s mother passed away leaving him with a significant inheritance. Morales
continues to invest as before without any change in the investment strategy. According to the CFA Institute
Standards of Professional Conduct, Morales should:

A) stay abreast of changes in the client’s net worth and accordingly update the investment policy to reflect changes in
investment objectives.
B) consider the long term aspect of Morales’ investments and continue with the current strategy.
C) keep changing the asset allocations in line with market changes.

Question Q-Code: L1-ES-GUID-006

6 Christie Tania, CFA, works as a fixed income manager for Mastermind Invest Capital. She finds an error in the
performance results of one of her accounts as the report is about to be released to the client. The correction of the
error will show an underperformance of the account compared to the selected benchmark. The client is not satisfied
with Mastermind and had previously indicated that the account will be terminated if it did not meet the requisite
returns. According to the CFA Institute Standards, Tania should:

A) not send the report and wait till account shows an improvement in results.
B) inform the appropriate individuals that the report needs to be updated before releasing it to the client.
C) not correct the error and send it.

Question Q-Code: L1-ES-GUID-007

7 Bernhard Investment and Brokerage Company, has recently changed its stock selection method based on
fundamental analysis to technical analysis. After testing it in-house under various scenarios, the new method seems
more appropriate to the investments done by Bernhard. Kurt Ludwig, CFA, a portfolio manager with Bernhard feels
that his clients will not understand the change and decides not to inform them. The most appropriate action Ludwig
should take to avoid a violation of the Code and Standards is:

A) to communicate the change of method to his clients and prospective clients.

B) to communicate to only those clients who have a previous knowledge of technical analysis.
C) not to inform of the change because it might lead the clients to challenge the new method of stock selection.

Question Q-Code: L1-ES-GUID-008

8 Dave Daisuke, CFA, works in the corporate finance department of Advile Securities. He receives a non-cash
compensation for every referral he makes to the brokerage department. This arrangement is an accepted norm
within the company but the clients are not informed because no cash is given out within the firm for interdepartmental
referrals. According to the CFA Institute Standards, the most appropriate action to take for the firm to avoid a
violation is to:

A) adjust the non-cash compensation in the salaries of the personnel including Daisuke who are referring clients to the
brokerage department.
B) disclose to clients at the time of a referral, the referral arrangements within Advile’s departments.
C) stop the referral policy to remove any conflicts of interest.

Question Q-Code: L1-ES-GUID-009

9 Lauren Crawley is enrolled to take the Level I exam. As he tries hard to remember a formula to complete a question,
he notices that the person in front of him gets up to drink water and a piece of paper slips from his pocket and falls
on Crawley’s table. In order to avoid a violation of the CFA Institute Standards of Professional Conduct, the least
appropriate action taken by Crawley is to:

A) remove it without looking at it and call the proctor.

B) immediately call the proctor to her table and have the paper removed.
C) look at the paper and then remove it before anyone else notices it.

Question Q-Code: L1-ES-GUID-010

10 Anna Becker is employed by Jergen Investment Management Company (JIMC). Becker is a Level II candidate and is the
only CFA candidate employed by JIMC. Becker is given supervisory responsibilities of the compliance department and
asked to review the firm’s compliance policies and procedures, which she finds inadequate. She voices her concerns
during a meeting with the CEO, who tells her to submit her recommendations in a report but these will not be
implemented since the firm is undergoing a change in structure and no compliance changes will be entertained till
 then. According to the Code and Standards, Becker should:

A) decline to accept supervisory responsibilities.

B) accept supervisory responsibilities and lay down the compliance policies and procedures for future.
C) wait till a new structure is implemented and then review the entire firm.

Question Q-Code: L1-ES-GUID-012

11 Cory Crawford works as a fixed-income portfolio manager focusing on investment grade bonds at Doonesbury
Capital. His clients are primarily risk-averse, retired pensioners. Crawford’s firm has introduced a bonus system to
reward those portfolio managers who achieve a return higher than their respective benchmarks. Crawford, who is
also a Level I candidate, purchases certain high-yield bonds in order to increase the return of his portfolio. No change
in the objective or strategy has been suggested by Crawford. Crawford has least likely violated the Standard related
to:

A) Suitability.
B) Disclosure of Conflict.
C) Priority of Transactions.

Question Q-Code: L1-ES-GUID-014

12 Rhonda Gates, CFA, works as a senior analyst covering basic materials and mining industry at Marcel
Investments. After a thorough and independent research, Gates concludes that the stock of Riley Mining is overpriced
and recommends selling it to take profits. She informs all the department heads of Marcel of her findings. Thomas
Toffler, head of trading, after being informed about Riley’s stock immediately places a sell order on behalf of the firm
and is able to trade aggressively. The next day Gates’ report is sent to all clients and the sales force. Toffler least likely
violated which of the following Standards ?

A) Loyalty, Prudence and Care.

B) Priority of Transactions.
C) Fair Dealing.

Question Q-Code: L1-ES-GUID-015

13 Ratti Sonali, a Level III candidate, works as a trader at Rupali Investments. While working on trades for high net-worth
clients, she notices a decline in the portfolio value due to certain investments made by the portfolio manager. She
informs her supervisor Ashok Rajan who tells her not to concern herself with the portfolio manager’s performance.
Sonali then speaks to the compliance officer who tells her that the high net worth client portfolio is successful and the
portfolio manager is very competent. The Standard least likely violated is:

A) Loyalty. prudence, and care.

B) Misrepresentation.
C) Responsibilities of Supervisors.

Question Q-Code: L1-ES-GUID-016

14 Shehroze Parvan, CFA, manages a balanced fund at McCoy Securities. He recently joined the company after working
for ten years at Russell Securities. McCoy hired Parvan because of his proven track record at Russell. The new
advertising material that Parvan develops for the clients of McCoy carries his past performance which he achieved at
Russell as an endorsement of his knowledge and skills in investing. However, the performance results at the end
include a qualifier stating, “These results were achieved by Parvan at Russell Securities.” Has Parvan violated any
Standard?

A) Yes, relating to Misconduct.

B) Yes, relating to Performance Presentation.
C) No.

Question Q-Code: L1-ES-GUID-017

15 Ankit Aacharya, CFA, while making the marketing material for his firm Aakash Capital writes in the brochure, “Aakash
Capital is committed to achieving excellent performance for its clients. It hires the most eligible personnel in the field of
investment management. Most of the employees have either completed the CFA Program or are enrolled as
candidates in the CFA Program. As a CFA charterholder, I am the most qualified to manage client
investments.” Aacharya most likely violated the Standard with improper references to the:
 A) CFA Designation.
B) CFA Program.
C) CFA Institute.

Question Q-Code: L1-ES-GUID-018

16 Rasmussen Hadley, CFA, writes in an independent blog about the findings of his research on various companies. He
also works as an analyst with Brooklyn Brokers. He has written permission from his employer and appropriate
regulator to give his opinion about various securities in his blog. Hadley, however uses the pseudonym Sam Smith,
CFA, to hide his identity on the internet. Does Hadley violate the Standards?

A) No.
B) Yes, related to reference to CFA Designation.
C) Yes, related to loyalty.

Question Q-Code: L1-ES-GUID-019

17 Sylvia Lancaster, a CFA candidate, is hired by Trevor Securities as a junior analyst. James Brokovich is the director of
research at Trevor and feels that Lancaster should cover equities in emerging markets because of their rapid
growth. Lancaster reads various brokerage reports on the subject and talks to other analysts of the
company. Brokovich also arranges for her to meet with an old friend, Bryan Lee, who is on the board of various East
Asian companies. Lancaster is then asked to submit a report on the companies in the consumer durables industry of
East Asia. Due to shortage of time, Lancaster finalizes her report based on her conversation with Lee and the
brokerage reports, and gives her “buy” recommendations on Malaysian stocks from the consumer durables
industry. Lancaster does not give reference of the brokerage reports as sources in her report. The Standard least
likely violated by Lancaster is:

A) Diligence and Reasonable Basis.

B) Misrepresentation.
C) Conflicts of Interest.

Question Q-Code: L1-ES-GUID-020

18 Greg Vladislav, CFA, works for Anatoli Securities as a portfolio manager. One of his clients Boris Vladmir has left the
firm. Vladislav receives a request from a college friend who has recently started his money management firm to share
information and records of clients who have left Anatoli recently. Vladislav feels that it will not be inappropriate to send
him Vladmir’s records. Vladislav has most likely violated the Standard of:

A) Misconduct.
B) Loyalty.
C) Preservation of Confidentiality.

Question Q-Code: L1-ES-GUID-021

19 Lara Whitman, CFA, worked for Rapid Results Brokerage Company (RRBC) as a trader. She recently resigned her
position as a trader to join another competing investment and brokerage firm. Whitman did not sign any non-compete
agreement while at RRBC that would have prevented her from soliciting former clients. Whitman, however, had saved
her client list and records while working at RRBC, in her personal computer at home as a second copy. She accesses
this file to contact her former clients in her new job. The Standard most likely violated is:

A) Loyalty.
B) Duties to Clients.
C) Communications with Clients and Prospective Clients.

Question Q-Code: L1-ES-GUID-022

20 Julie Grosky, CFA, works for Harvest Mutual Fund where she manages a fixed income fund. In a hastily compiled
performance review, Grosky reports to her clients that her fund has exceeded the benchmark by 0.20%. Stuart
Brennan is a client of Harvest, who writes back to inform Grosky that the fund actually underperformed the
benchmark. Grosky incorrectly blames the error on a computer program newly implemented at Harvest. Grosky least
likely violated the Standard relating to:

A) Misrepresentation.
B) Misconduct.
 C) Independence and Objectivity.

Question Q-Code: L1-ES-GUID-023

21 Bryan Lee, CFA, works as a fund manager for Westlink Securities which historically has focused on US equities. Due
to his past experience, Lee is also knowledgeable about emerging markets. After discussing the matter with the Chief
Investment Officer (CIO) of Westlink, he decides to extend his fund’s investment universe to include equities from
emerging markets. The firm’s marketing and promotional literature is updated to reflect the change in investment
strategy. Has Lee violated any Standard ?

A) No.
B) Yes relating to Communications with Clients and Prospective Clients.
C) Yes, relating to Professionalism.

Question Q-Code: L1-ES-GUID-024

22 Siri Shekar, CFA, manages a balanced fund at Starlight Investments. She realizes that the fund’s holdings in the stock
of GYI Company are excessive, and selling the stock will not be easy since it is thinly traded. Shekar is also a regular
participant in various social media sites as well as internet chat rooms where she mentions that GYI is going into
expansion. The company has not yet announced any expansion plans. Shekar believes that this will build interest in
the stock and she will be able to get rid of some of her stock’s overweight position. Shekar least likely violated the CFA
Institute Standards of Professional Conduct related to:

A) Market Manipulation.
B) Material Nonpublic Information.
C) Diligence and Reasonable Basis.

Question Q-Code: L1-ES-GUID-025

23 Nick Nader, CFA, works as a trader for Trust Investment Bank. During lunch he receives a phone call from a longtime
friend Chris Sandler, who is a trader at SYI Securities. Sandler talks about various market rumors and tells Nader
about a software company which is going through merger talks with another company in the same industry. Nader
has a large purchase order from his portfolio manager for this stock. He searches various internet reports and the
software company’s website but finds no such news of the merger. Upon returning to his desk he places the order
aggressively and completes it by the next day before the company releases any information. Has Nader violated any
Standard?

A) No.
B) Yes, related to Material Nonpublic Information.
C) Yes, Independence and Objectivity.

Question Q-Code: L1-ES-GUID-026

24 Shazi Agnimukha, a CFA candidate, writes in her blog after taking the Level II exam of the CFA program. She posts
that the derivatives part of the exam was very easy while the ethics questions were difficult and time consuming. She
further writes that a question from ethics was not properly structured and she was confused by the language.
Agnimukha further describes a question in the Fixed Income portion in detail and asks if anyone can explain it to her.
Agnimukha has most likely violated the Standard related to:

A) Conduct as Participants in the CFA Program.

B) Conflicts of Interest.
C) Professionalism.

Question Q-Code: L1-ES-GUID-027

25 Raul Devgan, CFA, is a portfolio manager for Khadri Investments. He manages a high growth equity fund known as
SmartMoney. Devgan reports the performance of SmartMoney in its quarterly newsletter and states, “SmartMoney
was able to surpass its benchmark, S&P BSE by 0.20%. However, this type of performance should not be expected
from the fund always.” Adrik Vanyusha is a client of Devgan and follows the performance of SmartMoney closely.
Upon receiving the newsletter, he immediately contacts Devgan and informs him that the fund never exceeded its
benchmark but in reality had underperformed. Devgan recalculates the results after the complaint, which confirm
Vanyusha’s claim. He sends Vanyusha the correct results and blames the discrepancy on typographical error. Devgan
least likely violates the Standard relating to:
 A) Misconduct.
B) Misrepresentation.
C) Independence and Objectivity.

Question Q-Code: L1-ES-GUID-029

26 Vladmir Seriozha, CFA, is fixed-income analyst at Rasputin Securities and describes the investment strategy of
securities in a report to the firm’s clients which is based on scenarios of certain declines in interest rates. The report
explains the interest rate model which shows the increase in securities’ valuations as rates decline. The model does
not capture the risks of investment if the rates rise. Seriozha informs all the existing clients about the model's
weakness in capturing the risks related to investments in case of an increase in interest rates, but all the promotional
material for new clients does not carry this disclosure. Seriozha has most likely violated the Standard related to:

A) Communications with Clients and Prospective Clients.

B) Diligence and Reasonable Basis.
C) Duties to Clients.

Question Q-Code: L1-ES-GUID-030

27 Preet Khadri, CFA, works for Eminent Capital as an investment advisor. She meets with a college classmate at a dinner
who offers to pay Khadri a compensation for selling the stock of her company Zoratri Inc., to her clients. Khadri does
not mention this arrangement to her clients or employer, and sells the shares of Zoratri to her clients where
appropriate. Khadri has least likely violated the Standard related to:

A) Suitability.
B) Conflicts of Interest.
C) Additional Compensation Arrangement.

Question Q-Code: L1-ES-GUID-031

28 TriStar Money Management wants to invest in emerging market on behalf of its high-net-worth clients and hires Brent
Emory, an independent consultant to solicit proposals from various advisers. Emory after considerable due diligence
provides a list of managers based on their successful performance in the emerging market, but promotes Asian
Tigers as the most competent. TriStar selects Asian Tigers as the new manager from Emory’s list and further reviews
the selected new manager to ensure that Asian Tigers is the appropriate investment manager for its clients. During
the review, TriStar discovers that Emory was being paid by Asian Tigers to promote their services. Even though
Emory was being paid by both parties, TriStar’s investigation proves that the recommendation was objective and
appropriate. Emory has least likely violated the Standard related to:

A) Referral Fees.
B) Priority of Transactions.
C) Additional Compensation Arrangements.

Question Q-Code: L1-ES-GUID-032

29 Ankit Tivari, CFA, is an investment adviser who works for Best Securities. He has two clients: Raveena Ahisma, a 55
year-old widow with two college going children, and Agneya Adya, a 35-year old journalist who works for a local
newspaper. Both her clients are employed and earn a substantial salary. Adya is very aggressive with his investments
and wants to invest in high risk securities for a higher return, whereas Ahisma wants to invest in low risk, large cap
securities to achieve a constant income for her children’s education. Tivari recommends investing a quarter of their
portfolios in derivatives that have a potential to earn high returns despite their volatility. Did Tivari violate any Standard
while choosing investments for his clients?

A) Yes, for both his clients.

B) Yes, only in Ahisma’s case.
C) Yes, only in Adya’s case.

Question Q-Code: L1-ES-GUID-033

30 Catherine Czcibor, CFA, works as a portfolio manager for a local investment counseling firm. She is also a member of
her son’s school committee to help raise funding for a program for gifted children in music. Czcibor discusses an
arrangement with her supervisor in which she will donate a certain percentage of her fees from clients referred to her
by the school staff and parents. She gets a written approval from her firm. The school’s board also approves
 Czcibor’s plan and agrees to announce it in their upcoming parent teacher meeting along with sending a newsletter to
all the parents and staff. When Czcibor starts getting the school referrals, she clearly discusses the referral
arrangement with her new clients and the distribution of her donation to the school. Has Czcibor violated any CFA
Institute Standards of Professional Conduct?

A) Yes, related to conflicts of interest.

B) Yes, related to additional compensation arrangements.
C) No.

Question Q-Code: L1-ES-GUID-034

31 Isaac Dobrogost, a candidate in the CFA Program, works as an investment advisor for Zenith Mutual Fund. He is
invited by one of his clients, Sahara Inc. (SI), a manufacturing company, to meet with the finance director along with a
few large stakeholders of SI. In the meeting Dobrogost finds out that the company is going through a lean period and
will announce a decrease in earnings in their next quarter financial results. Can Dobrogost use this information to
change the rating of the company from “buy” to “sell”?

A) No.
B) Yes, because this information is given directly by the company.
C) Yes because it has been disseminated to the other stakeholders as well.

Question Q-Code: L1-ES-GUID-035

32 Izzy Zubeika, CFA, works for Topworth Mutual Fund and is a portfolio manager for an aggressive growth equity fund.
She is planning to sell a large portion of her investment to meet the medical costs of her ailing husband. Zubeika
wants to sell her stake in Royal Beverages, but her firm has recently upgraded the stock from “hold” to “buy”.
Nevertheless after receiving approval from her employer she informs her broker to conduct the trade. Has Zubeika
violated any CFA Institute Standards of Professional Conduct?

A) Yes related to Market Manipulation.

B) Yes, related to Priority of Transactions.
C) No.

Question Q-Code: L1-ES-GUID-036

33 Su Ming Li, CFA, works as a portfolio manager for Peoples Investment Bank. She is asked to analyze certain East
Asian equities by her firm, for the purpose of purchasing them. Li talks to Peter Wang, a friend and one of the owners
of Dragon Brokerage and Investment Company. He informs her that the East Asian equities are doing very well due to
a boom in their respective economies. After thoroughly investigating these equities, she purchases them for her
accounts wherever they are suitable. Soon after she gets a call from Dragon to join the firm as a managing partner. Li
accepts the offer and resigns from her current job. The week before joining Dragon, she purchases 1500 shares of
East Asian equities for her personal account. Once Li begins working at Dragon, she purchases a large block of
shares of East Asian equities and allocates them to accounts. Does Li’s purchase of shares for her personal account
violate the CFA Institute Standard of Professional Conduct ?

A) No, she bought the shares before beginning work at Dragon.

B) Yes, relating to Suitability.
C) Yes, relating to Priority of Transaction.

Question Q-Code: L1-ES-GUID-037

34 Kaori Kazuya and Albert Farnsworth are both candidates in the CFA Program. Kazuya is registered for the Level II
exam and Farnsworth has passed the Level III exam of the CFA program. Farnsworth is awaiting his CFA charter.
Kazuya works for Metro Investments and her business cards reads, “Kaori Kazuya, CFA Level II candidate” whereas
Farnsworth works as an analyst at Sarosky Wealth Management and does not put any CFA designation on his
business cards. But at the end of his reports, he does give a reference that, “Albert Farnsworth has passed all three
levels of the CFA Program and will be eligible for the CFA charter upon completion of the required work experience.”
Who most likely violated the Standards?

A) Both.
B) Kazuya has violated the Standards, but not Farnsworth.
C) Only Farnsworth violated the Standards.

Question Q-Code: L1-ES-GUID-038

35 Kayla Donovan, CFA, works as a portfolio manager for MacBrady Securities & Co. Some of her wealthy and large
clients hold long positions on Swift Delivery, which is a courier service. After analyzing her own company’s research
reports and information available on various internet sites about Swift, as well as Swift’s company website she
concludes that the stock is expected to rise sharply on the back of strong quarter-end earnings about to be released
in an earnings report in a few days. She informs all MacBrady’s clients since some of them will be at a distinct
advantage once the quarter-end earnings are reported. Donovan also runs a popular blog as an independent analyst
for which she has approval from her employer, where she mentions her predictions about various stocks including
observations about Swift’s stock. She discloses to her clients about her blog which they regularly visit. Has Donovan
violated any CFA Institute Standards of Professional Conduct?

A) Yes, relating to Market Manipulation.

B) Yes, relating to Priority of Transactions.
C) No.

Question Q-Code: L1-ES-GUID-039

36 Roza Hernandez is a trust officer for Rize Trust Co. Hernandez uses Ricardo Drez, a broker, for trust account
brokerage transactions. He gives Hernandez a lower price for her personal purchases than Hernandez’s trust
accounts. Hernandez is most likely violating the Standard related to:

A) Duty of Loyalty to Clients

B) Fair Dealing.
C) Suitability.

Question Q-Code: L1-ES-GUID-040

37 Robert Blake is on the board of directors of Rice Industries and receives free tickets at the end of each quarter for his
entire family to travel to any city of their choice in Europe for his services to the board. Blake does not disclose this
information to his employer since it is not a monetary compensation. Has Blake violated any CFA Institute Standards
of Professional Conduct?

A) No.
B) Yes, he has to inform his employer of the benefit he receives.
C) Yes, because he has bought stock of Rice for some of his clients where appropriate.

Question Q-Code: L1-ES-GUID-041

38 A group of CFA charterholders under the name Research CFA, present online research on several popular stocks.
Barry Marlow, a candidate in the CFA program, is an analyst at Drew Hedge Fund. He is under pressure by his firm
executives to present his research report and recommendations on certain stocks. Marlow reads the research report
by Research CFA and uses material in his report discussed in the online research. The least likely violation under the
CFA Institute Standards of Professional Conduct is:

A) Reference to CFA Institute, CFA Designation, and the CFA Program.

B) Diligence and Reasonable Basis.
C) Disclosure of Conflicts.

Question Q-Code: L1-ES-GUID-042

39 Sara Petrowski, a CFA candidate, works as an analyst at Topline Brokers. She reads in the Financial Times a study on
the financial markets issued by Ace Research. She uses material from the study in her research report and gives
recommendations to her clients. Petrowski does not cite the newspaper as a source since it is merely a conduit of the
original information. Has Petrowski violated the CFA Institute Standards of Professional Conduct?

A) Yes, she has misrepresented the information.

B) No, the newspaper is not the original source.
C) Yes, duty to her clients.

Question Q-Code: L1-ES-GUID-043

40 Janis David is the head of the research department at BAW, Inc. a brokerage firm. She has decided to change her
recommendation of the Cooper & Ginto Mines from sell to buy. She informs the other executives of the firm orally
before a report is prepared and sent to all customers. David’s actions are in line with the firm policy. Roger Little, one
 of the junior analysts at BAW immediately buys Cooper & Ginto stock for himself and informs some of his contacts
who are also BAW's clients for whom it is appropriate. David has most likely violated the CFA Institute Standards of
Professional Conduct related to:

A) Responsibilities of Supervisors.
B) Additional Compensation Arrangements.
C) Loyalty.

Question Q-Code: L1-ES-GUID-044

41 Syed Ali works for an investment bank and is involved in the underwriting of Apex Inc. The chief accountant of Apex
informs Ali that the information in the financial statements filed with the regulator by Ali overstate sales and understate
expenses. Ali seeks the advice of the legal counsel of the firm who states that it will be difficult for the regulator to
prove that Ali was involved in any wrongdoing. Ali has least likely violated the CFA Institute Standards of Professional
Conduct related to:

A) Misrepresentation.
B) Misconduct.
C) Fair Dealing.

Question Q-Code: L1-ES-GUID-045

42 Hari Ram and his few colleagues are planning to leave Greysons Inc., a local investment bank, to form their private
consultancy. Ram has found out that one of his clients has undertaken a request for proposal to hire a new
investment adviser. The RFP has been sent to Greysons and all of its competitors but its submission period will end
before Ram’s and his colleagues’ resignations become effective. Nevertheless, Ram and the departing colleagues
decide to respond to the client’s request. They have most likely violated the CFA Institute Standards of Professional
Conduct relating to:

A) Loyalty.
B) Conflict of Interest.
C) Duties to Clients.

Question Q-Code: L1-ES-GUID-046

43 Richard Swanson, an analyst at Azwitz Securities, covers the oil industry. He, along with other analysts, has just
visited Prell Refineries, an exploration and production company. Based on his own assessment and calculation of the
drilling on site, Swanson has concluded that the company has abundant oil reserves. This view is not shared by the
other analysts who have visited the site. Swanson writes in his research report that Prell is in fact sitting on vast oil
reserves and makes a buy recommendation. Has Swanson violated any of the CFA Institute Standards of Professional
Conduct?

A) No.
B) Yes, Communication with Client and Prospective Clients.
C) Yes, Diligence and Reasonable Basis.

Question Q-Code: L1-ES-GUID-047

44 Romana Zahoor works for a local brokerage firm and is a CFA candidate. She plans to issue a buy recommendation
for the stock of Basics. Before issuing the recommendation, she buys the stock for herself through her sister’s
account. Zahoor most likely violates the Standard of:

A) Priority of Transactions.
B) Fair Dealing.
C) Suitability.

Question Q-Code: L1-ES-GUID-048

45 Eileen Connors is a chief trader for Ascot Investments, a money management firm. She has been told recently by her
most lucrative client Shelby Company that if the performance of its accounts did not improve they will be forced to
change their money managers. Connors has purchased certain securities a few days back, whose price has gone up
significantly. She has failed to allocate these trades due to her busy schedule. After the threat from Shelby, she
decides to allocate the profitable trades to Shelby’s account, while spreading the losing trades to other Ascot’s
accounts. Has Connors violated any Standard?
 A) Yes, related to Fair Dealing.
B) No.
C) Yes, related to Diligence and Reasonable Basis.

Question Q-Code: L1-ES-GUID-049

46 Penelope Cox is employed by Jameason Investment, and provides investment advice to the trustees of SYU University
in order to recommend investments that would generate capital appreciation in endowment funds. Cox has been
given internal reports by the trustees that highlight the expansion of the university. Cox is approached by Bradley
Cooper, a local philanthropist who is considering a generous contribution to SYU and another university in the area,
but he would like to see the expansion plans of SYU before making the donation. Cox knows that he does not want to
speak to the trustees hence she gives a copy of the internal report to Cooper. Has Cox violated the Code and
Standards?

A) No.
B) Yes, preservation of confidentiality.
C) Yes, loyalty.

Question Q-Code: L1-ES-GUID-050

47 Carla Simone, a CFA candidate and a research analyst, follows firms in the beverage industry. She has been
recommending the purchase of Citrus, because of its introduction of a popular new drink for athletes and exercise
enthusiasts. Simone’s husband has inherited from a relative, the stock of Citrus worth $3.5 million. Simone has been
asked to write a follow up report on Citrus. She writes the report and gives a strong buy recommendation. The report
does not mention her husband’s ownership of the stock. Has Simone violated the CFA Institute Standards?

A) No.
B) Yes, disclosure of conflicts.
C) Yes, independence and objectivity.

Question Q-Code: L1-ES-GUID-051

48 Babar Ahmed is a trader at Cooper & Baines, a local brokerage firm. He trades frequently in the stock of Zelle, despite
the fact that Zelle is not on the recommended list of securities of Cooper. Ann Miller is the supervisor and compliance
officer of Ahmad. Part of her compensation is based on the trading revenues of Cooper. She notices the large volume
of trade of Zelle, but does not investigate it. Has Miller violated the CFA Institute Standards?

A) Yes, conflict of interests.

B) No.
C) Yes, responsibilities of supervisors.

Question Q-Code: L1-ES-GUID-052

49 XYZ, an investment firm, manages pension plans of various large companies. XYZ mainly uses Greatson, Inc. for
most of its trading activity. This is because the CEOs of the two companies are close friends. Greatson is more
expensive than the other brokerage firms offering the same brokerage services. Its research and execution are
average compared to the other brokerage firms. But Greatson absorbs XYZ’s rent in exchange for the brokerage
business given to it by XYZ. Has XYZ violated any CFA Institute Standards of Professional Conduct?

A) Yes, relating to loyalty, prudence, and care.

B) No.
C) Yes, relating to misconduct.

Question Q-Code: L1-ES-GUID-053

50 Tracy Chapman works as a proctor for the administration of the CFA examination in her city. She reviews a copy of
the Level III exam on the evening prior to the exam and discloses information to two candidates who use it to prepare
for the exam. Chapman and the two candidates have least likely violated the CFA Institute Standards of Professional
Conduct, related to:

A) Conduct that compromises the integrity, validity or security of CFA Institute programs.
B) Suitability.
C) Attempt to circumvent security measures established by the CFA Institute.
Question Q-Code: L1-ES-GUID-054

51 Christina Lucci, a CFA candidate, who is a portfolio manager of a growth mutual fund, maintains an account in her
sister’s name at several brokerage firms with which her fund’s clients also do business. Whenever an eagerly awaited
equity IPO is announced, she instructs the brokers to buy it for her sister’s account. Because such issues are scarce,
her clients are unable to receive any new shares. Lucci most likely violates the CFA Institute Standards of Professional
Conduct related to:

A) Priority of Transactions.
B) Disclosure of Conflicts.
C) Additional Compensation Arrangements.

Question Q-Code: L1-ES-GUID-055

52 Stefan Ericsson, a CFA candidate is an analyst working for publicly traded companies to electronically promote their
stocks. He has also set up a website to market his research capabilities as an independent analyst. Ericsson posts a
buy recommendation on his website for each company that he has a contractual relationship with and fails to disclose
this in the research reports he issues or statements in the internet chat rooms. Ericsson least likely violated the CFA
Institute Standards of Professional Conduct related to:

A) Misrepresentation.
B) Disclosure of Conflicts.
C) Fair Dealing.

Question Q-Code: L1-ES-GUID-056

53 Brendon Frazer, a CFA candidate, is an analyst with ITI, an investment and brokerage company. ITI requires him to
give a recommendation and research report every month on a different company. He is also enrolled in a university
where he takes night classes to earn an MBA. Frazer has informed his employer of his enrollment in the university.
Due to excessive workload he finds it difficult to complete his research report on a technology company on time. In
order to save time he develops his report based on a few articles he read recently about the company and gives his
‘buy’ recommendation. Frazer gives the reference of the articles in his report. Is Frazer’s report and recommendation
in compliance with the CFA Institute Standards of Practice?

A) No.
B) Yes, because he gives reference of the articles.
C) Yes, because the technology company is suitable for some clients of ITI.

Question Q-Code: L1-ES-GUID-057

54 Nancy Keene recently left Kay Investments to join another competing firm. She left her former employer after 10
years without any non-compete agreement, and did not solicit any of her clients during the transition period. After
joining the new firm, she wants to contact her former clients because she developed close ties with them after earning
strong returns for their portfolios. Keene knows that many will follow her to the new employer. Is Keene in violation of
CFA Institute Standards of Professional Conduct?

A) Yes, because she cannot contact her former clients.

B) No, because she does not use any material from her former employer.
C) Yes, because of loyalty to her former employer.

Question Q-Code: L1-ES-GUID-058

55 Phillip Cochran, a CFA charterholder, is a portfolio analyst with Frazier Trust, and manages the portfolio of Dennis
Quad. Although Cochran receives a salary from his employer, Quad tells him that “any year my portfolio exceeds a
rate of return of 16% before tax; you can fly to Paris at my expense and use my apartment for a week”. Cochran fails
to inform his employer of the arrangement and his vacation in Paris the following year. Cochran most likely violated
the CFA Institute Standards of Professional Conduct related to:

A) Additional Compensation Arrangement.

B) Suitability.
C) Independence and Objectivity.

Question Q-Code: L1-ES-GUID-059

56 Selma Hyek, a senior executive of Avery Capital, issues a performance report for the accounts that showed capital
appreciation for the years 1990 to 2006. Avery Capital claims compliance with GIPS standards. Returns are not
calculated in accordance with the GIPS standards, because the composites are not asset weighted. Hyek most likely
violates the CFA Institute Standards of Professional Conduct relating to:

A) Performance Presentation.
B) Integrity of Capital Markets.
C) Record Retention.

Question Q-Code: L1-ES-GUID-060

57 Steve Miller is enrolled as a candidate in the CFA Program. He works as an assistant manager in Trust Investment
Bank. He enjoys drinking liquor during his lunch break. Miller’s colleagues have noticed that he is visibly intoxicated
after the lunch break and is not in a position to make rational investment decisions. Miller most likely violates the
Standard of:

A) Misconduct.
B) Knowledge of the Law.
C) Disclosure of Conflicts.

Question Q-Code: L1-ES-GUID-061

58 Steve Tylor, a CFA candidate and a technology analyst with Rock Brokers, is invited by SuperTech to participate in a
technology conference at SuperTech’s expense. SuperTech has also invited a few other analysts from different
companies to the same conference. It arranges and pays for Tylor’s airfare and accommodation for two nights. The
trip is strictly for business purposes and Tylor is not offered any lavish hospitality by SuperTech. Tylor informs his
employer of the arrangement and is given permission to attend the conference. By accepting this invitation, has Tylor
violated the CFA Institute Standards of Professional Conduct?

A) No.
B) Yes, because it creates a conflict of interest.
C) Yes, because it compromises Tylor’s independence and objectivity.

Question Q-Code: L1-ES-GUID-062

59 Franz Beckenbaur, CFA, is a trader for Lee Inc., an investment and brokerage firm. He receives compensation for
referrals from the firm’s portfolio and financial planning division. He usually refers clients from his previous employer
and does not have a non-compete arrangement with them. Beckenbaur uses his own personal material to contact
them and informs them duly of the referral arrangement. Has Beckenbaur violated any Standard ?

A) No, because he discloses to his former clients the referral arrangement.

B) Yes, because he has a duty of loyalty to his clients.
C) Yes, because of a breach of loyalty to his former employer

Question Q-Code: L1-ES-GUID-063

60 Penelope Gonzales is employed as a part-time analyst with Cooper Associates, an institutional asset manager. She is
paid a flat fee to complete a study of the technology industry within a certain time span. She is also given unlimited
access to Cooper’s files and data. Gonzales can use the office facilities of Cooper during normal working hours.
Towards the conclusion of her report, she is offered a job at Noblex, which is an IT firm. Gonzales submits a copy of
her report along with recommendations to her new employer. Has Gonzales violated any Standard?

A) No.
B) Yes, loyalty.
C) Yes, misrepresentation.

Question Q-Code: L1-ES-GUID-064

61 Leila Salman works for a firm that advertises its past performance in various periodicals. Salman discovers that some
accounts have left the firm recently and the returns of these accounts are not included in the promotional material.
The omission has led to inflated performance returns. Salman is asked to use the same material while soliciting clients.
By doing so, Salman will least likely be violating the CFA Institute Standard of:

A) Knowledge of the Law.

B) Misrepresentation.
 B) Misrepresentation.
C) Performance Presentation.

Question Q-Code: L1-ES-GUID-065

62 Janice McDowell, CFA, is the chief investment officer of Zenith Investment Bank and wants to improve the
diversification of one of its balanced funds in order to improve its returns. The investment policy statement of the
fund mentions low risk investments in large-cap equities, government bonds of AA ratings and corporate bonds of
high investment grade ratings. However, a new IPO offering of a small pharmaceutical company with high growth
potential, promises high returns since the issue is being offered at a discount. He immediately allocates some portion
of the issue to his fund, without exceeding the limit on the equity exposure of this fund. McDowell has least likely
violated the CFA Institute Standards of Professional Conduct relating to:

A) Loyalty, prudence and care.

B) Suitability.
C) Fair dealing.

Question Q-Code: L1-ES-GUID-066

63 Alan Clay, candidate in the CFA Program, works for a large money manager. He recently applied for an analyst position
at Rodham & Winston, an investment bank and was hired by them. Before leaving his current employer, he copies the
firm’s software that he developed, which he believes is his property. Clay feels that his software is one of a kind and
will help him in his new job. Has Clay violated any Standard ?

A) No, the software was developed exclusively by him.

B) Yes, with respect to loyalty.
C) Yes, because he failed to inform his new employer that the model was developed for his previous employer.

Question Q-Code: L1-ES-GUID-067

64 Avi Sharon is an analyst for Ariel Investment Management. He recommends the purchase of ABC company’s stock
after conducting due diligence on the company and has published a research report that is well accepted by the
company’s management. The business managers of ABC invite him for further discussions. They sponsor his air
ticket and accommodations at an expensive hotel. Sharon, as per the policy of Ariel, discusses the travel and stay
arrangements with his employer and is given permission. He further meets with the CFO in a dinner arranged by ABC
and gives full disclosure to his employer upon his return. According to the Standards of Practice Handbook, has
Sharon violated any CFA Institute Standard ?

A) Yes, with respect to Disclosure of Conflicts.

B) Yes, with respect to Additional Compensation Arrangements.
C) No.

Question Q-Code: L1-ES-GUID-068

65 Zion mutual fund advertises in its marketing brochures that all the fund managers at Zion are CFA charterholders,
and hence achieve better performance results. Which CFA Institute Standard of Professional Conduct is most likely
violated?

A) Reference to CFA Institute, CFA Designation, and the CFA Program.

B) Professional misconduct.
C) Misrepresentation.

Question Q-Code: L1-ES-GUID-069

66 Ann Haley posts on her Twitter account that her Level III of the CFA exam went very well. She further adds that
although the exam was difficult and very tiring she still managed to do fairly well by effectively managing time. Has
Haley violated any Standard ?

A) No.
B) Yes, with respect to her conduct as participant in the CFA Program.
C) Yes, with respect to reference to the CFA Program.

Question Q-Code: L1-ES-GUID-070

67 Signa is a local wealth management firm that mostly employs either CFA charterholders or candidates in the CFA
 Program as its employees. Hence it uses the name Signa, Chartered Financial Analysts, Inc. as the firm’s name. Which
Standard did Signa most likely violate?

A) Reference to the CFA Designation.

B) Misrepresentation.
C) Knowledge of the Law.

Question Q-Code: L1-ES-GUID-071

68 Shiraz Ahmed is a trader at an investment management firm. He is also involved in the buy-side trades of an
aggressive equity fund managed by the firm. During a recent decline in the market many securities of the aggressive
equity fund show a marked decline in value, but the performance of the fund does not show a change in return.
Ahmed at once mentions it to his supervisor and the compliance officer, who tell him that the fund is doing well and he
should concentrate on his job at the trading desk instead of asking irrelevant questions. The CFA Institute Standard
that is least likely violated is:

A) Professional Misconduct.
B) Responsibilities of Supervisors.
C) Material Nonpublic Information.

Question Q-Code: L1-ES-GUID-072

69 Chang Li is head of sales at an investment bank. Li while reviewing the marketing material of the bank realizes that
some of the information contained there-in is out of date. The marketing material is generated from the results
provided by the bank’s mutual funds and Li has no control over it. He continues to provide the material to his sales
team without updates. Did Li violate any Standard?

A) Yes, with respect to misrepresentation.

B) No, because he has no control over the marketing material.
C) Yes, with respect to disclosure of conflicts.

Question Q-Code: L1-ES-GUID-073

70 Greg Lou has been asked by his firm, Binkley Investment Management, to find an adviser for one of its funds which
invests in derivatives and complex securities. Lou selects 12 firms based on their annual total return performance and
finalizes on the adviser with the highest annual total return. Which CFA Institute Standards of Professional Conduct
did Lou violate?

A) Communications with Clients and Prospective Clients.

B) Professional Misconduct.
C) Diligence and Reasonable Basis.

Question Q-Code: L1-ES-GUID-074

71 Samina Haq a CFA candidate, works for Superior Trust Company. While reviewing the performance of one of the trust
funds, she finds out that the trust fund has on an average performed at 5% for the last three years yet the brochure
of her fund advertises an annual compound growth rate of 20%, which happened only in the past year. It also boasts
of a consistent increment in the investment value above the entire market which also took place during last year.
Haq’s highest priority in avoiding a violation of the CFA Institute Standards of Professional Conduct is to:

A) correct the performance calculation and length of time.

B) continue with the advertisement since it did rise above the market.
C) use the firm’s average rate of return in her marketing material for all accounts.

Question Q-Code: L1-ES-GUID-075

72 Weinberg Inc., a global asset management company, has a large position in Wessner Pharma. The trading volume of
this stock is low. In order to boost the liquidity of the stock, multiple trading desks at Weinburg start buying and
selling Wessner shares from each other. The CFA Institute Standard most likely violated by Weinberg is:

A) Market Manipulation.
B) Misconduct.
C) Acting on Non Public Information.

Question Q-Code: L1-ES-GUID-076

73 Norman Bates, CFA works as an analyst for Angle Investments. She has been asked to cover investments in the Asian
markets for their high rate of return. The trip is sponsored by Sia, an investment and brokerage firm. Bates knows
that Sia charges commission at a higher rate than the other brokerage facilities used by her firm. Nevertheless she
convinces the trading desk at Angle to give more business to Sia so she can take the trip. Bates is most likely violating
the CFA Institute Standard of Professional Conduct related to:

A) Diligence and Reasonable Basis.

B) Loyalty, Prudence, and Care.
C) Additional Compensation Arrangements.

Question Q-Code: L1-ES-GUID-077

74 Mary Burnette supervises a team of research analysts at Brigham Money Managers. One of her team member Siri
Desai, an auto analyst, follows various websites and blogs for research purposes on the auto industry. Desai while
browsing through the internet comes across a report by an independent research analyst on the hybrid car
introduced by Koyota Motor Company. Based on that report she gives a recommendation of ‘buy’ in her research
report without giving reference of her source. Burnette is under a deadline by her firm to compile the reports and to
implement the recommendations. She does not review Desai’s work and sets up a meeting with the portfolio
managers to discuss the execution strategy based on the research reports submitted by her team. Burnette least
likely violated the CFA Institute Standard of:

A) Responsibilities of Supervisors.
B) Diligence and Reasonable Basis.
C) Disclosure of Conflicts.

Question Q-Code: L1-ES-GUID-078

75 Raza Jaffery works as an independent analyst for the medical equipment industry. His reports are based on an
analysis of customer interviews, manufacturers, on-site company visits, and secondary research from other analysts.
Jaffery does not maintain any records or files for the information he collects but he mentions the source of his
research in his reports. If the clients need information on the specific web sites, Jaffery always provides them with the
relevant information. Jaffery most likely violated which of the following Standards?

A) Record Retention.
B) Diligence and Reasonable Basis.
C) Misrepresentation

Question Q-Code: L1-ES-GUID-079

76 Cora Bentley works for an investment counseling firm. She is approached by a new client Sue Grey for financial
advice. Bentley very enthusiastically explains to her how she can increase her return by investing in a few small-cap
stocks that are selling at a discount in the market. Has Bentley committed a violation of the CFA Institute Standards?

A) No.
B) Yes, Bentley should have explained her qualifications, her education, and experience and the meaning of her CFA
Designation.
C) Yes, Bentley should have determined Grey’s needs, objectives, tolerance and risk before making any
recommendations.

Question Q-Code: L1-ES-GUID-080

77 Robert Brown is an analyst at Lazarus Investment Bank, which is one of the underwriters of Coolidge Inc. Brown
discovers that the company has not given accurate earnings figures. The actual figures are much lower than the
numbers presented. The preliminary prospectus has been distributed. Brown talks to his supervisor, who casually
dismisses the matter. Brown requests his manager to assign him to another project. His action most likely conforms
to which Standard ?

A) Knowledge of the Law.

B) Misrepresentation.
C) Difference between fact and opinion.

Question Q-Code: L1-ES-GUID-081

78 An independent analyst recommends a stock based on a 5-minute pre-market talk show by a reputed analyst, on the
TV that morning. The recommendation is least likely a violation of:

A) Diligence and Reasonable Basis.

B) Suitability.
C) Fair Dealing.

Question Q-Code: L1-ES-GUID-082

79 Martina Bart, CFA, is working as a portfolio manager at a large global investment manager. Most of her clients are
residents of a conservative country called Inara, where the new government has introduced a new law barring equity
holdings in tobacco companies. Bart’s clients have significant exposure to tobacco companies through international
funds in their portfolio because of the handsome returns they have earned in the past. Three months have passed,
Bart is unaware of the change in law and takes no action. According to the Standards, his inaction is:

A) is a violation of the Standards as members should stay informed of the changes in applicable laws.
B) not a violation of the Standards since the exposure is through international funds and not domestic tobacco
companies.
C) not a violation since it is a recommended procedure and a member cannot be expected to keep track of the laws of
all the countries his clients are from.

Question Q-Code: L1-ES-GUID-083

80 BU Airlines has taken INR 1.1 billion of debt and is unable to service it. The stock prices have been falling and some
investors are accumulating the stock in the hope it will rise soon. Most investors are unaware of the health of the loss-
making airline. The research team at Emitus Investment Management, covers the stock and wants to publish an
adverse opinion on the stock. The firm’s policy does not permit dissemination of a negative opinion about a client, as it
was the underwriter when BU went public two years ago. The best course of action is:

A) defy the firm’s orders and issue an adverse opinion as loyalty to clients takes precedence.
B) to put BU on a restricted list.
C) issue a favorable report for now as the airline industry is volatile and the company may turn around.

Question Q-Code: L1-ES-GUID-084

81 Lunu Mbasa is an independent analyst who writes a popular financial blog on stock selection. He is hired by an
investor relations firm to publish a research report on FKart, an online lifestyle firm, on his blog. Mbasa will be paid a
fixed fee plus a monthly voucher that can be redeemed on the site if any investor buys the stock based on his report.
There is no disclaimer about the arrangement in his blog post. This arrangement is least likely a violation of:

A) Disclosure of conflicts.
B) Independence and Objectivity.
C) Suitability.

Question Q-Code: L1-ES-GUID-085

82 Pratik Mathew, a candidate registered for the Level II exam copies important concepts ad formulas from difficult
topics such as Economics, Quantitative Methods and Derivatives daily from the CFA Institute curriculum and posts
them on his Facebook page. He had paid for the online version of the curriculum. He does not attribute the source of
his post. Mathew is most likely in violation of:

A) Misrepresentation.
B) Misconduct.
C) Responsibilities as a CFA Institute Member or CFA Candidate.

Question Q-Code: L1-ES-GUID-086

83 Inventure Advisors hires ten research analysts at the entry level from a reputed management school. One of the
recruits, Smith, has served a three-day jail term after being convicted for drug abuse, while still in school, that was not
disclosed at the time of recruitment. He has since reformed after being to a rehabilitation center. However, Smith had
provided references, who would have acknowledged this incident if the firm had done the background check. Who is
most likely in violation of Standard I(V) Misconduct?

A) Smith, for not revealing the offence at the time of recruitment.

B) The firm for not conducting the background check.
 B) The firm for not conducting the background check.
C) Both Smith and the firm.

Question Q-Code: L1-ES-GUID-087

84 Sanjay Babu is a research analyst at Waterhouse Investment Management firm. He covers Sat Corp, a technology
services firm. Babu, during a visit to the firm to interview the business heads about future growth prospects,
overhears a conversation between the CFO and VP-HR in the adjoining room, that the market regulator of India is
privately interrogating the CEO’s involvement in an insider trading case of Sat Corp. What is the best course of action
for Babu to take?

A) Issue a sell recommendation as the stock will fall once the information is public.
B) Encourage Sat Corp. to make the information public.
C) Communicate the information to his research team members so that they do not make any investment
recommendation on the firm.

Question Q-Code: L1-ES-GUID-088

85 The Food Safety and Standards Authority of India (FSSAI) was investigating the presence of dangerous substances in
a popular baby cereal, manufactured by Selet Limited. Selet is a publicly listed company with operations around the
world. The tests results showed the presence of harmful chemicals above permissible limits that could mean product
recalls and a temporary ban on production. The results of the test have not made public as yet. Tara, a lead scientist
at one of Selet’s labs, confides the results to Raul, a research analyst who covers Selet and manages Tara’s
portfolio. She asks him to sell her holdings in Selet. If Raul acts on Tara’s information only for her portfolio, he would
most likely violate which of the following Standards?

A) Fair Dealing.
B) Material Nonpublic Information.
C) Market Manipulation.

Question Q-Code: L1-ES-GUID-089

86 Alex Karachanis, CFA, is an independent financial advisor with a roster of over 100 clients. Along with advisory
services, he also facilitates in executing the trades for his clients and manages their portfolio. Adonia Papadakis signed
up Alex in November 2013 to advise and manage her portfolio. After detailed discussions on Adonia’s circumstances
and return requirements, it was agreed that only large cap equity investments will be made. In mid-2013 Alex felt that
large cap stocks were excessively overvalued and shifted 50% of the portfolio to small-cap stocks. Over the next six
months, small-cap stocks significantly outperformed large cap stocks. It is now January 2014 and Adonia has just
received her account statement for 2013. She is very happy with the performance of her portfolio. Which Standard
did Alex least likely violate?

A) Performance Presentation.
B) Communication with Clients and Prospective Clients.
C) Suitability.

Question Q-Code: L1-ES-GUID-090

87 Riya, CFA, a portfolio manager has two high net worth clients: Rita and Anita. The two clients are sisters and except a
few asset classes, their portfolio holdings are the same. The sisters have received $200,000 each in inheritance. Both,
Rita and Anita, have expressed interest in taking exposure in risky international equities, especially China. Anita also
plans to buy a new house in the next 3-4 months and needs to make a down payment of $450,000. Riya is aware of
Anita’s plans and her needs for liquidity. After a thorough research, Riya identifies a fund that has the potential to earn
good returns in the next three years, and recommends it to Rita for investment. Has Riya violated any Standard by
not recommending the fund to Anita?

A) Yes, Standard III (B) Fair Dealing.

B) No.
C) Standard III (C) Suitability.

Question Q-Code: L1-ES-GUID-091

88 Roland Andrade manages a small-cap, growth fund called Equity Opportunity Series – Growth. He purchases the
stock of large-cap dividend paying company as it will bring stability to the fund. After the purchase, the stock has the
highest holding in the fund. Which Standard did Andrade most likely violate?
 A) Suitability.
B) Diligence and Reasonable Basis.
C) Loyalty, Prudence, and Care.

Question Q-Code: L1-ES-GUID-092

89 Alba Parker, CFA, is working on a presentation for prospective clients. She showcases the return for the past seven
years of a composite of the firm’s discretionary accounts whose objective is to invest in European growth companies.
Parker includes the returns of terminated accounts as the returns are impressive. She adds a note to the
presentation indicating that the returns of terminated accounts have also been included. Is Parker in compliance with
Standard III (D) Performance Presentation and GIPS Standards?

A) No.
B) Yes, in compliance with Standard III (D) Performance Presentation, but not with GIPS.
C) Yes.

Question Q-Code: L1-ES-GUID-093

90 Ind Bank has recently started advisory services at its new branch in Nhasi located in an affluent neighborhood of high
net worth individuals. To promote its services, the bank conducts a marketing drive and in one month signs up many
clients. Ent Nes, an advisor at the bank, is meeting with a new client at the latter’s home. The client wants to know if
anyone from the community are Nes’ clients and whether any private equity (PE) investments have been made. Nes
boasts of the business he has garnered in the past month and says a few people have recently made PE investments,
but does not reveal their names. Has Nes violated any Standard?

A) No.
B) Loyalty.
C) Preservation of Confidentiality.

Question Q-Code: L1-ES-GUID-094

91 Vishal Kachru, CFA, works as a research analyst with HDC Investments. On Saturdays, he gives lectures on leadership
and brand building for three hours at a management school nearby. He is compensated well for this activity as an
independent lecturer. Kachru ensures that he schedules this class only when he is not required at work. Did Kachru
violate any Standard?

A) Yes, Standard IV (A) Loyalty by not informing his employer of this engagement and compensation.
B) No, because it does not affect the responsibilities to his employer.
C) Yes, Standard VI (C) Disclosure of Conflicts.

Question Q-Code: L1-ES-GUID-095

92 Andrea Whistler, CFA is a research analyst at Awesome Investments. Among the list of stocks she covers is home e-
tailer Fabnish, which was issued a buy recommendation recently. Whistler is also a passionate home décor blogger in
her spare time. To promote their newly launched home décor section, Fabnish has approached Whistler to do an
objective post on home improvement using the products on their site. She will be compensated through vouchers for
this activity that can be redeemed on the site. Whistler does not inform her employer of this activity as it does not
interfere with her work commitments. Did any violation take place?

A) Yes, she should have informed her employer of the additional compensation.
B) No, because there was no conflict of interest.
C) No, because she was loyal to her employer.

Question Q-Code: L1-ES-GUID-096

93 Aidan Ackermann, CFA, is recently hired as a banking analyst at Becker Investments. One of the mandates given by
his supervisor Abigail Wohlers, is to improve the online presence of Becker among social media platforms. Ackermann
posts regularly on the company’s Facebook page and Twitter on the various services offered by Becker as well as
snippets of the companies on his research list. He shares his buy/sell/hold recommendation in a brief manner on
Twitter before the report is released to all clients. Wohlers is least likely to have violated the Standard relating to?

A) Fair Dealing.
B) Responsibilities of Supervisors.
C) Preservation of Confidentiality.