SECTION A: Ethics in the Investment Industry (12 marks)

(Each question is worth 3 marks).

For questions 1, 2 and 3 you have to:

1. Circle the correct answer (2 marks)
2. Link the correct CFA standard (1 Mark)

The following information assumes that the CFA Institute Code of Ethics and Standards are applicable.

1. Lara Green is based in the U.S. and works covering the U.S. market for her Singapore based employer. She is invited to a meeting with the top 20 shareholders of a biotechnology company to meet with the management team. During that meeting, the R&D director mentions that the Food and Drug Administration (FDA) has just approved the companys new drug. Can Green use this information to update her analyst forecast on the company from a sell to a buy?

1. Yes, even though the information is nonpublic at the moment, it is nonmaterial
2. Yes, as she was invited to the meeting and told by company management
3. No, because she must first determine if the information is public knowledge

Standard: _____________________

2. Which of the following statements is most accurate? Investment professionals have a special responsibility to act ethically because:

1. The industry is heavily regulated.
2. The profession requires compliance with its code of ethics.
3. They are entrusted to protect clients' assets.

Standard: _____________________

3. Joe Smith, an investment adviser, has two clients: Nathan King, 50 years old, and Tony Wall, 40 years old. Both clients earn roughly the same salary, but King wants only to achieve a steady rate of return with low volatility to pay for his childrens education; Wall has a much higher risk tolerance because he has a large asset base. Wall is willing to invest part of his assets very aggressively. Smith recommends investing 25 percent of both portfolios in consumer staple companies with low growth but consistently pay dividends over time. Did Joes statements to King and Wall violate the CFA Institute Code and Standards?

1. Only in Walls case did Smith violate the Code and Standards
2. Only in Kings case did Smith Violate the Code and Standards
3. Neither statement violated the Code and Standards

Standard: _____________________

4. Explain what is the mosaic theory in the context of the CFA Code of Ethics and Professional Standards: