22 Jul WHICH SCENARIO MIGHT PROMPT HAMILTON TO BYPASS A SPECIFIC ISSUE DUE TO ITS RATING?
.Chuen recently began his professional career as an investment advisor. Prior to joining his firm C Show more .Chuen recently began his professional career as an investment advisor. Prior to joining his firm Chuen went back to school and earned an MBA and has passed all three levels of the CFA exam. Initially he discusses all recommendations being made to his clients with his supervisor to ensure they are suitable with the clients investment policy statements. Chuen recommends one particular international growth fund to several clients that focused on several of the larger emerging market countries. The fund has fees comparable to its peers a stable portfolio management team and consistently ranked in the top percentile for quarterly and annual returns. Within the first year of having clients invest in this fund one of the countries experienced a major economic collapse brought on by a change in governmental leaders which caused the fund to fall by 55%. A. Cheuns recommendation violated the Standard on diligence as he did not anticipate the economic collapse of a new government. B. Chuens recommendation complied with the Standard on diligence as the change in leaders was not known at the time of the recommendation. C. Chuens recommendation violated the Standard on diligence as it included an investment with potential downside risk. 12 2. Esposito resides in Country A a country that has no securities laws governing the disclosure of conflicts of interest to clients. However Esposito does business in Country B a country whose securities laws regarding conflicts of interest are more strict than the CFA Institute Code and Standards. The laws of Country B are applicable to Espositos conduct. Esposito must: A. Comply with the laws of Country A because that is where he resides. B. Comply with the laws of Country B because those laws are more strict than the Code and Standards. C. Comply with the Code and Standards because CFA Institute members must comply with the Code and Standards at all times. 17 3. Hamilton manages the portfolios of wealthy individuals. Several of her clients have investments in asset-backed securities to increase the yield on their portfolio. Hamilton is reviewing possible scenarios that potentially would have a negative impact on a credit rating agencys independence and objectivity related to their rating of the ABS issues. Which scenario might prompt Hamilton to bypass a specific issue due to its rating? A. The only rating agency following a specific security also advised in structuring the product which was not disclosed by the firm. B. The sponsoring firm paid all major rating agencies a flat fee to rate their new issue. C. One rating agency included scenarios that went beyond the historical norms for expected defaults of the assets to determine the risks of the security and its rating. Show less
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