Question #10 - Reading 43 Application of the Code and Standards Level II

Reading: Reading 43 Application of the Code and Standards Level II

PDF File: Reading 43 Application of the Code and Standards Level II.pdf

Page: 8

Status: Incorrect

Correct Answer: A

Your Answer: C

Shared Context

- With regard to the Smith account, O'Brien's actions are best described as being in: A) violation of Standard V(B) - Communication with Clients and Prospective Clients. B) compliance with all applicable CFA Institute Standards. C) violation of Standard III(A) - Loyalty, Prudence, and Care.

Question

Which of the following statements about O'Brien's use of convertible bonds is CORRECT?

Answer Choices:

A. O’Brien’s lack of expertise in equity analysis, despite usage of the CFA mark, represents a violation of Standard VII(A): Conduct as Members and Candidates in the CFA Program

B. The use of convertible bonds in O’Brien’s high-yield fund violates Standard V(A): Diligence and Reasonable Basis

C. Unless O’Brien makes arrangements for someone else to vote the proxies, he is in violation of Standard III(A): Loyalty, Prudence, and Care

Explanation

O'Brien has a fiduciary duty to ensure that the proxies are voted according to the best interests of his clients. He need not do the voting himself, but he must set up a system by which somebody takes responsibility. There is nothing about convertible bonds that makes them necessarily unfit for a high-yield fund. If O'Brien earned the CFA designation and kept his dues up to date, he can use the designation even if he specializes. Standard I(C), Misrepresentation, relates to marketing services, not voting proxies.

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