1.

The corporate finance department of an investment banking firm has decided to compete for the business of FMA Inc. Knowing that the firm's brokerage unit now has a "sell" recommendation on FMA Inc., the head of investment banking asks the head of the brokerage unit to change the recommendation from "sell" to "buy". According to the CFA Institute Standards of Professional Conduct, the brokerage unit would be permitted to:

		remove the company from the research universe and put it on a restricted list giving only factual information about the firm.
		increase the rating by no more than one increment (in this case to a "hold" recommendation).
		assign a new analyst to the company and change the rating.

2.

An analyst is reviewing possible scenarios that potentially would have a negative impact on a credit rating agency's independence and objectivity related to their rating of asset-backed securities (ABS). Which scenario might prompt the analyst to bypass a specific issue because of its rating?

		The sponsoring firm paid all major rating agencies a flat fee to rate their new issue.
		One rating agency included scenarios that wetn beyond the historical norms for expected defaults of the assets to determine the risks of the security and its rating.
		The only rating agency following a specific security also advised in structuring the product, which fact was not disclosed by the firm.

3.

A registered investment advisor receives a request from a client to move 25% of his diversified $1million account balance to the common stock of a particular company. The client believes that the company is about to receive a merger offer. This transaction is outside the client's current risk profile, but it would help him reach his investment goals if the deal were to occur. What course of action should the advisor undertake to comply with the CFA Institute Code and Standards?

		Educate the client on the suitability concerns involved with the requested actions before following the approved procedures for executing a client's unsolicited transaction.
		Execute the trade immediately as requested by the client because any delays would become a liability for the advisor.
		Inform the client that the trade cannot be executed until after the two meet to update his investment policy statement because the request in unsuitable.

4.

A research analyst has changed his recommendation on a company from "buy" to "sell". The analyst faxed this change in investment advice to all his customers. Two hours later, one of his clients called in with a buy order for 500 shares of this company. Under these circumstances, the analyst:

		should accept the order because it is a transaction specifically requested by his client.
		should advise the customer of the change in recommendation before accepting the order.
		should not accept the order until one day has elapsed after the communication of the change in recommendation.

5.

A portfolio manager at an investment firm is responsible for handling the account of a particular corporate client. The client want to pay the manager a $100K bonus over and above his regular compensation from the investment firm if the manager achieves an 18% annual return on the account. To comply with the Code and Standards, the manager:

		can accept this offer as long as he discloses the arrangement to his employer and receives permission to accept.
		cannot accept this offer because it will interfere with his independence and ability to be objective regarding investment decisions and recommendations.
		can accept this offer and must disclose the bonus to his employer only if he actually receives it.