2019 CFA practice item siet quizlevel III SS 1 2 item set quiz 1

Level III SS 1 & 2 Item Set Quiz 1 (6 questions, 18 minutes)

Jane Grant, CFA is a fund manager at Global Assets LLC and currently manages a fund which
focuses on the pharmaceutical industry. Outside of work, Jane designs clothes for a few close
friends for a nominal fee. She does not disclose this outside business activity
activity to her employer or
clients.
The fund managed by Jane invests in small-cap,
small cap, publicly traded companies and is recommended
only for investors who are able to assume a high level of risk. Six months ago, Jane invested in
MiraclePro, a pharmaceutical company focusing on medicines and treatments for cancer and other
terminal illnesses. A year ago, MiraclePro’s market capitalization doubled shortly after they
announced the launch of a drug that successfully treated Alzheimer’s disease. Jane tells her cli
clients
that the fund has been able to benefit immensely from the doubling of MircalePro’s market
capitalization. One of the founders of MiraclePro, James Welsh, is on the board of Global Assets. In
the last few months, MiraclePro has launched a number of new products and James Welsh’s
information about the launches led Jane to purchase additional stock in MiraclePro before the
launch became public in the media.
Global Assets also has a strategic partnership with a life insurance company, OneLife. When the
sales
les representatives of Global Assets market the firm’s products (mutual funds, annuities, etc.) to
the investing public, they also market life insurance policies of OneLife. In return for the marketing
of their products, OneLife pays Global Assets a 2% commission.
commission. This commission arrangement is
not disclosed to clients. In addition, the Global Assets sales team frequently receives gifts of
nominal value from OneLife.
To motivate the sales representatives to perform better, Global Assets has decided to hold a
competition amongst the representatives to choose the Sales Representative of the Year. The winner
is determined by the amount of new revenue generated for the firm. The prize is a cash award of
USD 100,000. While announcing details of the competition, the CEO advises the staff to focus their

sales efforts on Global Assets’ front-end
front end load funds since they earn the highest fees. He also adds
that the staff should not disclose this competition to clients.
In a separate meeting with the board, the CEO announces
announces that the firm would benefit by adoption of
the Asset Manager Code of Professional Conduct. Not only would it encourage ethical and fair
practices in the firm but it would also help them increase business volumes. During the meeting, the
CEO suggests several recommendations that can be implemented to achieve compliance with the
Asset Manager Code of Professional Conduct:
Recommendation 1:: Global Assets has an investment banking business in addition to its fund
management business. To avoid any conflicts,
conflicts, we should create a separate wholly owned subsidiary
to undertake the investment banking business.

Recommendation 2: We should utilize only one stockbroker in each market to ensure timely and
efficient trades in each of the markets the Fund invests in.
i

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Level III SS 1 & 2 Item Set Quiz 1 (6 questions, 18 minutes)

1. Which of the following statements is most likely accurate regarding Jane's actions in relation to
her business activity outside of work? Jane is:
A. Not obligated to disclose these outside business activities because they do not present a

conflict of interest.
B. In violation of the Code and Standards for not disclosing her outside business activities to
her employer.
C. In violation of the Code and Standards by including high risk investments in the fund
portfolio assets.
2. With regard to the investment in MiraclePro,
M
Global Assets least likely violated which of the
following Standards of Professional Conduct?
A. Suitability
B. Misrepresentation
C. Material Non-public
public Information
3. With respect to Global Asset’s relationship with OneLife, which of the following is most likely a
violation of the Code and Standards:
A. Marketing OneLife’s products along with its own.
B. Receiving a commission from OneLife.
C. Not disclosing the commission arrangement to clients and potential clients.
4. By participating in Global Asset’s Sales Representative of the Year competition, the sales
representatives are least likely to violate the standard with respect to:
A. Loyalty, prudence and care.
B. Suitability.
C. Additional compensation arrangements.
5. Which of the following is most likely correct with respect to Recommendation 1 and the Asset
Manager Code?
A. Recommendation 1 is consistent with the Asset Manager Code.
B. Maintaining the investment banking business, even as a separate subsidiary, is not consistent
with
th the Asset Manager Code.
C. It is acceptable to maintain both the fund management and investment banking businesses as

long as any possible conflicts are clearly disclosed.
6. If Recommendation 2 were to be implemented, which aspect of the Asset Manager Co
Code would
most likely be violated?
A. Fair dealing.
B. Best execution.
C. Priority of Transactions.
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