MCQ Quiz

Mastakis, a junior analyst, writes a report predicting stable interest rates. The firm's investment committee reviews it and, based on their collective expertise, revises the conclusion to predict rising rates. Mastakis disagrees with the change but acknowledges the committee's view has a reasonable basis. Must she dissociate from the report?

• Yes, because an analyst must never sign a report that contradicts their personal opinion.
• No, because the group consensus has a reasonable basis, even if she disagrees with the conclusion.
• Yes, because the committee's intervention compromises her independence and objectivity.

Liakos rushes to create a volatility strategy for a client. She outsources components to trusted third parties. Each component is validated individually, but Liakos never tests how they interact as a whole system. The strategy collapses when the components work at cross-purposes during market stress. Has Liakos violated Standard V(A)?

• Yes, because she failed to understand and test the interaction of the model's components.
• No, because she exercised due diligence by validating each individual component.
• No, because she relied on trusted third parties which is permitted under the Standards.

Stefansson recommends a complex performance attribution system solely because the sales presentation was impressive. She does not review the other four candidates or test if the calculation methodology aligns with her firm's specific investment strategy. Has Stefansson violated Standard V(A)?

• Yes, because she lacked a reasonable basis for the recommendation and failed to investigate alternatives.
• No, because software selection is an operational decision, not an investment recommendation.
• No, because relying on vendor representations is standard industry practice.

Chandler selects five US equity managers for a pension client based on a rigorous database screen. Before delivering the report, she learns that one manager's entire investment team has quit. She delivers the original report without the update, reasoning the database was accurate at the time of screening. Has Chandler violated Standard V(A)?

• Yes, because she failed to exercise diligence by ignoring material new information known before delivery.
• No, because her recommendation was based on a thorough and objective process at the time of analysis.
• No, because the client can be informed of the team departure during the next quarterly review.

Cannon, a quant analyst, reads a blog post about a new market factor. Under pressure to improve performance, he immediately incorporates this factor into the firm's live trading models without testing it on the firm's specific data or history. Has Cannon violated Standard V(A)?

• No, because the blog was written by a reputable CFA charterholder.
• Yes, because he failed to establish a reasonable basis for the new factor through his own testing.
• No, because continuous improvement of models is required by the Competence standard.

Hawke, a corporate finance manager, rushes to price several IPOs to beat a tax loophole deadline. Lacking resources to research each company fully, she prices them based solely on their relative size compared to peers, intending to justify the valuation later. Has Hawke violated Standard V(A)?

• No, because the time constraint was an external factor beyond her control.
• Yes, because she failed to exercise diligence and thoroughness in analyzing the specific investments.
• No, because relative valuation is a widely accepted industry standard for pricing new issues.

Ostrowski searches for a subadviser to handle international investments. He receives seven proposals but feels unqualified to judge their investment merit. He selects the firm with the lowest fees to minimize impact on his firm's bottom line. Has Ostrowski violated Standard V(A)?

• No, because minimizing costs is a fiduciary duty to the client.
• Yes, because he failed to investigate the qualifications and strategy of the subadviser.
• No, because he used a standardized Request for Proposal (RFP) process.

Thompson runs a stress test on mortgage securities. He insists on including a 'negative housing price' scenario, even though historical data shows prices have never fallen. His manager argues it's too dire. Thompson runs the test, finds high risk, and recommends against purchase. Has Thompson acted appropriately?

• No, because he based his analysis on a scenario that contradicts all available historical data.
• Yes, because diligence requires testing assumptions outside of historical norms (stress testing).
• No, because his model inputs were subjective and not grounded in empirical evidence.