CFA practice 1
Proprietary trading is most likely carried out by:
dealers.
brokers.
settlement agents. - Answer Dealers,
Dealers act as principals, so they are deemed proprietary traders. Dealers trade on
behalf of their own accounts and use their own capital to make markets. B is incorrect.
Brokers arrange deals between the buyers and the sellers. They do not trade for their
own accounts. C is incorrect. Settlement agents provide services to clear and settle
deals after they have been negotiated.
Q. Globalisation in the investment industry is associated with the growing tendency of
investors:
to look outside their local market for investment opportunities.
to prefer to hedge the risks of foreign investment, such as currency risk.
in smaller countries to compete more effectively with those in larger countries - Answer
to look outside their local market for investment opportunities.
A is correct. Globalisation occurs as investors develop a growing tendency to look
outside their local markets for better portfolio diversification and higher returns. B is
incorrect. The decision to hedge various risks will depend on the individual investor's
needs and beliefs, not the extent of globalisation. C is incorrect. Globalisation gives all
investors more opportunities but does not favour one group over another.
The goal of all economic systems is to:
efficiently allocate scarce resources to their most productive uses.
produce enough goods and services to satisfy the desires of all consumers.
support government spending on public services, such as education, defence, and
infrastructure. - Answer efficiently allocate scarce resources to their most productive
uses
The goal of all economic systems is the efficient allocation of scarce resources to their
most productive uses. People have an unlimited desire for goods and services, but
resources are limited. Economic systems must address three questions: (1) What
should be produced? (2) How should it be produced? (3) Who should receive what is
produced? The goal is to answer these questions in a way that best satisfies
consumers' needs
An individual who helps buyers and sellers find and trade with one another is a(n):
broker.
dealer.
auditor. - Answer Broker
Securities regulations are created by:
,CFA practice 1
legislative bodies.
individual investors.
government agencies. - Answer Government Agencies
The CFA Institute Code of Ethics requires members to:
protect clients' interests at all times and in all situations.
encourage competitors to increase their levels of competence.
ensure investment recommendations are similar across an industry. - Answer
encourage competitors to increase their levels of competence.
An employee is assigned a complicated task by her supervisor but believes she does
not have the technical skills to carry it out. The employee should:
refuse to carry out the assignment.
carry out the work as best as she can.
get a co-worker to do it and take credit for the work. - Answer Refuse to carry out the
assignment
Investment advisers have an ethical obligation to:
protect their own interests.
exercise independent judgment.
sell products with the highest fees. - Answer Exercise independent judgment
Based on the CFA Institute Standards of Practice, investment advisers should manage
a client's investment portfolio the same way they would manage:
their own assets.
other client accounts.
the account if managed by a competitor. - Answer Their own assets
During a job interview, a potential employer described the CFA Institute Code of Ethics
as "a set of principles establishing rules governing ethical behaviour required of
investment professionals toward their clients and employers". Does this description fully
capture the Code of Ethics' requirement to act in an ethical manner?
Yes
No, the Code of Ethics also requires ethical behaviour when dealing with potential
clients
No, the Code of Ethics also requires ethical interaction with all capital market
participants - Answer No, the code of ethics also require ethical interaction with all
capital market participants
Regulators often seek public consultation prior to the implementation of new regulations
in order to:
,CFA practice 1
educate consumers and service providers on the new rules.
improve the final rules by undertaking a cost-benefit analysis.
ensure that the new rules are favourable to those likely to be affected. - Answer Improve
the rules by undertaking a cost-benefit analysis
Regulations prohibiting front running are types of:
trading rules.
operational rules.
sales practice rules. - Answer Trading rules
Regulators help capital markets do all of the following except:
reduce investment risk.
allocate capital to productive use.
ensure investors are treated equally. - Answer Ensure investors are treated equally
Net capital rules are put in place to prevent all of the following except:
global financial contagion.
losses experienced by firms.
the use of excessive leverage. - Answer losses experienced by firms
The processes by which regulations are developed:
are similar across the globe.
vary widely from informal to formal.
are standardised across the various jurisdictions within a country. - Answer Vary widely
from informal to formal
A store owner recently turned down a substantial cash offer for his store and the land on
which the store is located. Although the store owner considered the offer to be fair, he
wanted to continue running the business. This year, his business has incurred costs for
merchandise sold; wages paid to workers, including his own salary; utilities; and
property taxes. When determining the business's accounting profit for the period, he is
most likely to correctly exclude which of the following:
his own salary.
property taxes.
the opportunity cost of the land and store. - Answer The opportunity cost of the land and
the store
A company is in the large shipbuilding industry with most of its operating costs fixed.
The company has not used any debt to finance its operations. The operating leverage
for such a firm is most likely:
, CFA practice 1
low.
high.
zero. - Answer High
The notion of scarce economic resources:
applies only to undeveloped nations.
gives rise to choices determined by opportunity costs.
applies when the amount of freely available goods exceeds the amount people desire. -
Answer Give rise to choices determined by opportunity costs
The crowding out effect will most likely lead to higher:
tax revenues.
interest rates.
private investment. - Answer Interest rates
Which of the following actions taken by a central bank is best described as
expansionary?
Increasing its policy rate
Purchasing government bonds
Increasing the reserve requirement - Answer Purchasing government bonds
A government implements a policy that encourages consumers and businesses to
increase spending and investment. Those who benefit from this additional spending, in
turn, increase their own spending. The mechanism by which the initial increase in
spending increases total spending by a greater amount is known as the:
multiplier effect.
inflationary effect.
financial contagion effect. - Answer Multiplier effect
An obstacle to the alignment of international business cycles is the existence of
international:
policy forums.
free trade zone agreements.
restrictions on capital flows. - Answer Restrictions on capital flows
The broadest-based measure of a nation's inflation rate is provided by the:
implicit GDP deflator.
consumer price index (CPI).
producer price index (PPI). - Answer Implicit GDP deflator
Proprietary trading is most likely carried out by:
dealers.
brokers.
settlement agents. - Answer Dealers,
Dealers act as principals, so they are deemed proprietary traders. Dealers trade on
behalf of their own accounts and use their own capital to make markets. B is incorrect.
Brokers arrange deals between the buyers and the sellers. They do not trade for their
own accounts. C is incorrect. Settlement agents provide services to clear and settle
deals after they have been negotiated.
Q. Globalisation in the investment industry is associated with the growing tendency of
investors:
to look outside their local market for investment opportunities.
to prefer to hedge the risks of foreign investment, such as currency risk.
in smaller countries to compete more effectively with those in larger countries - Answer
to look outside their local market for investment opportunities.
A is correct. Globalisation occurs as investors develop a growing tendency to look
outside their local markets for better portfolio diversification and higher returns. B is
incorrect. The decision to hedge various risks will depend on the individual investor's
needs and beliefs, not the extent of globalisation. C is incorrect. Globalisation gives all
investors more opportunities but does not favour one group over another.
The goal of all economic systems is to:
efficiently allocate scarce resources to their most productive uses.
produce enough goods and services to satisfy the desires of all consumers.
support government spending on public services, such as education, defence, and
infrastructure. - Answer efficiently allocate scarce resources to their most productive
uses
The goal of all economic systems is the efficient allocation of scarce resources to their
most productive uses. People have an unlimited desire for goods and services, but
resources are limited. Economic systems must address three questions: (1) What
should be produced? (2) How should it be produced? (3) Who should receive what is
produced? The goal is to answer these questions in a way that best satisfies
consumers' needs
An individual who helps buyers and sellers find and trade with one another is a(n):
broker.
dealer.
auditor. - Answer Broker
Securities regulations are created by:
,CFA practice 1
legislative bodies.
individual investors.
government agencies. - Answer Government Agencies
The CFA Institute Code of Ethics requires members to:
protect clients' interests at all times and in all situations.
encourage competitors to increase their levels of competence.
ensure investment recommendations are similar across an industry. - Answer
encourage competitors to increase their levels of competence.
An employee is assigned a complicated task by her supervisor but believes she does
not have the technical skills to carry it out. The employee should:
refuse to carry out the assignment.
carry out the work as best as she can.
get a co-worker to do it and take credit for the work. - Answer Refuse to carry out the
assignment
Investment advisers have an ethical obligation to:
protect their own interests.
exercise independent judgment.
sell products with the highest fees. - Answer Exercise independent judgment
Based on the CFA Institute Standards of Practice, investment advisers should manage
a client's investment portfolio the same way they would manage:
their own assets.
other client accounts.
the account if managed by a competitor. - Answer Their own assets
During a job interview, a potential employer described the CFA Institute Code of Ethics
as "a set of principles establishing rules governing ethical behaviour required of
investment professionals toward their clients and employers". Does this description fully
capture the Code of Ethics' requirement to act in an ethical manner?
Yes
No, the Code of Ethics also requires ethical behaviour when dealing with potential
clients
No, the Code of Ethics also requires ethical interaction with all capital market
participants - Answer No, the code of ethics also require ethical interaction with all
capital market participants
Regulators often seek public consultation prior to the implementation of new regulations
in order to:
,CFA practice 1
educate consumers and service providers on the new rules.
improve the final rules by undertaking a cost-benefit analysis.
ensure that the new rules are favourable to those likely to be affected. - Answer Improve
the rules by undertaking a cost-benefit analysis
Regulations prohibiting front running are types of:
trading rules.
operational rules.
sales practice rules. - Answer Trading rules
Regulators help capital markets do all of the following except:
reduce investment risk.
allocate capital to productive use.
ensure investors are treated equally. - Answer Ensure investors are treated equally
Net capital rules are put in place to prevent all of the following except:
global financial contagion.
losses experienced by firms.
the use of excessive leverage. - Answer losses experienced by firms
The processes by which regulations are developed:
are similar across the globe.
vary widely from informal to formal.
are standardised across the various jurisdictions within a country. - Answer Vary widely
from informal to formal
A store owner recently turned down a substantial cash offer for his store and the land on
which the store is located. Although the store owner considered the offer to be fair, he
wanted to continue running the business. This year, his business has incurred costs for
merchandise sold; wages paid to workers, including his own salary; utilities; and
property taxes. When determining the business's accounting profit for the period, he is
most likely to correctly exclude which of the following:
his own salary.
property taxes.
the opportunity cost of the land and store. - Answer The opportunity cost of the land and
the store
A company is in the large shipbuilding industry with most of its operating costs fixed.
The company has not used any debt to finance its operations. The operating leverage
for such a firm is most likely:
, CFA practice 1
low.
high.
zero. - Answer High
The notion of scarce economic resources:
applies only to undeveloped nations.
gives rise to choices determined by opportunity costs.
applies when the amount of freely available goods exceeds the amount people desire. -
Answer Give rise to choices determined by opportunity costs
The crowding out effect will most likely lead to higher:
tax revenues.
interest rates.
private investment. - Answer Interest rates
Which of the following actions taken by a central bank is best described as
expansionary?
Increasing its policy rate
Purchasing government bonds
Increasing the reserve requirement - Answer Purchasing government bonds
A government implements a policy that encourages consumers and businesses to
increase spending and investment. Those who benefit from this additional spending, in
turn, increase their own spending. The mechanism by which the initial increase in
spending increases total spending by a greater amount is known as the:
multiplier effect.
inflationary effect.
financial contagion effect. - Answer Multiplier effect
An obstacle to the alignment of international business cycles is the existence of
international:
policy forums.
free trade zone agreements.
restrictions on capital flows. - Answer Restrictions on capital flows
The broadest-based measure of a nation's inflation rate is provided by the:
implicit GDP deflator.
consumer price index (CPI).
producer price index (PPI). - Answer Implicit GDP deflator
