BLOCK 6
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Questions and Answers

What is one of the primary duties owed to clients under the Standards of Professional Conduct?

  • Fair Dealing (correct)
  • Maximization of returns
  • Minimization of fees
  • Transparency in all communications

    • Which action is prohibited under the responsibilities of a CFA Institute member or candidate?

  • Engaging in discussions about CFA programs
  • Participating in networking events
  • Using confidential information for personal advantage (correct)
  • Referring to the CFA designation in marketing material

    • Which of the following conflicts of interest must be avoided or disclosed according to the updated standards?

  • Regular communications with clients
  • Referral Fees (correct)
  • Long-term investment strategies
  • Market trends analysis

    • What is emphasized in the duties to employers regarding supervision?

    <p>Responsibility of Supervisors</p> Signup and view all the answers

    What constitutes a violation of the conduct standards in CFA Institute programs?

    <p>Cheating on the CFA exam</p> Signup and view all the answers

    What may happen to CFA Institute members if they violate the Code?

    <p>They may face revocation of their membership.</p> Signup and view all the answers

    Which of the following is NOT one of the six components of the Code of Ethics?

    <p>Disparage competitors in the industry.</p> Signup and view all the answers

    Which best describes the primary purpose of the Code of Ethics?

    <p>To outline expected character and conduct in the finance profession.</p> Signup and view all the answers

    Which ethical responsibility emphasizes the need for professionalism?

    <p>Practice and encourage ethical conduct.</p> Signup and view all the answers

    What is a key responsibility of CFA members as it relates to their professional competence?

    <p>Maintain and improve professional competence.</p> Signup and view all the answers

    What is the expected approach CFA members should take when there is a conflict of interest?

    <p>Place client interests above their own personal interests.</p> Signup and view all the answers

    How should CFA members contribute to the global capital markets?

    <p>By promoting the integrity and viability of the markets.</p> Signup and view all the answers

    What is the primary focus of the updated regulations that came into effect on 01.01.2024 regarding Competence?

    <p>Improved diligence and reasonable basis</p> Signup and view all the answers

    Which of the following responsibilities pertains to the new name for avoiding or disclosing conflicts of interest effective from 01.01.2024?

    <p>Avoid or Disclose Conflicts</p> Signup and view all the answers

    Which duty is NOT included under Duties to Clients?

    <p>Compliance with the law</p> Signup and view all the answers

    What should Members and Candidates do in the event of a conflict between laws, rules, or regulations?

    <p>Adhere to the stricter law, rule, or regulation</p> Signup and view all the answers

    Which action falls under the responsibility of supervisors as per the Standards of Professional Conduct?

    <p>Ensuring compliance with all applicable laws</p> Signup and view all the answers

    Which of the following is NOT directly related to the integrity of capital markets?

    <p>Referral Fees</p> Signup and view all the answers

    What aspect does 'Communication with Clients and Prospective Clients' encompass in the context of investment analysis?

    <p>Transparency in client reporting</p> Signup and view all the answers

    Which phrase best describes the term 'Fair Dealing' under Duties to Clients?

    <p>Equal treatment for all transactions</p> Signup and view all the answers

    As a CFA Institute member or candidate, what is a responsibility related to conducting as participants in CFA programs?

    <p>Maintaining integrity of the CFA designation</p> Signup and view all the answers

    Which of the following is NOT included in the responsibilities of CFA Institute members or candidates?

    <p>Disclose Confidential Client Information</p> Signup and view all the answers

    What is the primary duty under the section regarding 'Duties to Clients'?

    <p>Loyalty, Prudence, and Care</p> Signup and view all the answers

    Which action best aligns with the guideline on Integrity of Capital Markets?

    <p>Avoiding transactions based on rumored tips</p> Signup and view all the answers

    What new name has been given to the guideline concerning managing conflicts of interest since 01.01.2024?

    <p>Avoid or Disclose Conflicts</p> Signup and view all the answers

    Under which section is the guideline about 'Material Nonpublic Information' categorized?

    <p>Integrity of Capital Markets</p> Signup and view all the answers

    Which of the following behaviors is considered misconduct according to the standards?

    <p>Providing misleading performance information</p> Signup and view all the answers

    What should members do when facing a potential conflict of interest?

    <p>Avoid or disclose the conflict</p> Signup and view all the answers

    Which of the following is essential for maintaining Competence as per the standards enforced from 01.01.2024?

    <p>Engaging in continuous learning</p> Signup and view all the answers

    What is a key ethical consideration members must observe regarding insider trading?

    <p>Members must not act on material nonpublic information</p> Signup and view all the answers

    Which of the listed actions falls under diligence for investment analysis?

    <p>Conducting thorough research before recommendations</p> Signup and view all the answers

    What defines information as material in the context of securities?

    <p>It affects the price of a security or is sought after by reasonable investors.</p> Signup and view all the answers

    Which of the following describes nonpublic information?

    <p>Information that has not yet been disclosed to the marketplace.</p> Signup and view all the answers

    What implication does the mosaic theory have for analysts using nonpublic information?

    <p>It permits analysts to formulate conclusions using nonmaterial, nonpublic information combined with public data.</p> Signup and view all the answers

    Which action constitutes market manipulation under the Standards of Professional Conduct?

    <p>Engaging in trades that distort the market price of a security.</p> Signup and view all the answers

    What is a consequence of selectively disclosing information by corporations?

    <p>It can lead to legal action for insider trading violations.</p> Signup and view all the answers

    What should Andrea Waters do regarding her nonpublic information from drug firms, according to Standards of Professional Conduct?

    <p>She may use the information after ensuring compliance approval.</p> Signup and view all the answers

    Which practice is explicitly prohibited as a form of market manipulation?

    <p>Spreading unsubstantiated rumors to influence stock prices.</p> Signup and view all the answers

    Which of the following can lead to legal repercussions due to insider trading violations?

    <p>Using selective, nonpublic information to guide trading decisions.</p> Signup and view all the answers

    What is considered a valid application of the mosaic theory?

    <p>Considering nonmaterial nonpublic information with public data for analysis.</p> Signup and view all the answers

    Which of the following actions aligns with ethical responsibilities in capital market integrity?

    <p>Analyzing company's financial health based on public records.</p> Signup and view all the answers

    Study Notes

    Portfolio Theory & Behavioral Finance (w.IN.20HS.V)

    • Block 6 covers Ethics in Finance
    • Key figures include Dr.-Ing. Martin Schnauss, CFA, FRM & Laura Archer-Svoboda
    • Contact information and version number provided
    • The course is accredited by AACSB

    Topics in Ethics in Finance

    • Introduction to Ethics in Finance is covered
    • CFA Institute Ethical Decision-making Framework is discussed
    • Code of Ethics is described
    • Standards of Professional Conduct (ethical responsibilities); covers Professionalism, Integrity of Capital Markets, Duties to Clients, Duties to Employers, Investment Analysis, Recommendations, and Actions, Conflicts of Interest, (Responsibilities as a CFA Institute member or CFA Candidate), and GIPS: Global Investment Performance Standards.

    Introduction: Ethics in Finance

    Ethics Definition

    • Ethics are rules of conduct, providing guidance for behavior when it affects others.
    • Fundamental ethical principles: honesty, fairness, diligence, and respect for others.

    Challenges in Ethical Behavior

    • Overestimating one's ethical character
    • Considering only short-term consequences
    • Allowing external influences to affect decisions (e.g. peer pressure)
    • Complete disregard of ethical standards

    Need for High Ethical Standards in Investment Industry

    • Investment professionals have a responsibility to protect and grow client assets using their specialized knowledge and skills.
    • Investment management is an intangible product, making high ethical standards crucial in the financial services profession.
    • Not all unethical actions are illegal, and vice versa.
    • Laws are more specific than ethical principles.
    • Ethical actions, like civil disobedience might be considered ethical even if illegal.

    CFA Institute Ethical Decision-making Framework

    • A tool for analyzing and evaluating ethical scenarios.
    • A structured approach to decision-making that goes beyond simply 'right' or 'wrong'.
    • Key elements: Identify, Consider, Reflect, Act.

    CFA Institute Code of Ethics and Standards of Professional Conduct

    • Purpose: ensure ethical behavior, professional integrity, and trust in the investment profession.
    • Guiding the actions of chartered financial analysts, protecting the integrity of CFA Institute members, designations, and exam programs.
    • Serving as a model for measuring professional ethics globally, regardless of job function, culture, or local laws.
    • Members, especially CFA charterholders and candidates, must comply with the Code and Standards.
    • Violations might result in disciplinary sanctions (revocation of membership, candidacy, or the right to use the CFA designation).

    Code of Ethics

    • Provides a broad summation of the character and professional conduct expected from CFA charterholders and candidates within the finance industry.
    • Six main components:
      1. Act with integrity, competence and diligence in a manner which reflects respect for other participants in the global markets.
      2. Put client interests above personal interests.
      3. Use reasonable care and exercise independent judgment.
      4. Practice ethically and encourage others to do so too.
      5. Promote the integrity and viability of global capital markets.
      6. Maintain and improve professional competence.

    Standards of Professional Conduct

    • Cover various aspects of ethical conduct and responsibilities for investment professionals.
      • Professionalism
      • Integrity of Capital Markets
      • Duties to Clients
      • Duties to Employers

    GIPS: Global Investment Performance Standards

    • Developed by the CFA Institute.
    • A standardized, globally-recognized set of ethical principles and standards.
    • Used to calculate and present performance histories for investment firms, for potential and existing clients.
    • Aims to:
      • Ensure full disclosure
      • Facilitate easier comparison among firms
      • Boost investor confidence
      • Prevent misrepresentations.
    • Includes:
      • Composite Presentation
      • Verification Process
    • Key aspects:
      • Includes both required and recommended provisions
      • Firms must include a minimum of five years or since their inception.
      • Total firm assets must be included (fee-paying and non-fee-paying)
      • Partial compliance does not exist

    How to Become a CFA Charterholder

    • Pass required CFA Exams, including levels I, II, and III.
    • Complete necessary practical skills modules.
    • Obtain required work experience (in investment decision-making process or work-product development).
    • Acquire appropriate professional references.
    • Apply directly to CFA Institute to become a member.

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    Portfolio Theory & Behavioural Finance Lecture Slides PDF

    Description

    Test your knowledge on the Standards of Professional Conduct set by the CFA Institute. This quiz covers various aspects including ethical responsibilities, conflicts of interest, and conduct violations relevant to CFA members and candidates. Prepare to check your understanding of the Code of Ethics and professional duties.

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