CFA Investment Foundations Mock Exam Questions and Answers Graded A+

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Proprietary trading is most likely carried out by: dealers. brokers. settlement agents. - ANSWER Dealers, Dealers act as principals, so they are deemed proprietary traders. Dealers trade on behal... f of their own accounts and use their own capital to make markets. B is incorrect. Brokers arrange deals between the buyers and the sellers. They do not trade for their own accounts. C is incorrect. Settlement agents provide services to clear and settle deals after they have been negotiated. Q. Globalisation in the investment industry is associated with the growing tendency of investors: to look outside their local market for investment opportunities. to prefer to hedge the risks of foreign investment, such as currency risk. in smaller countries to compete more effectively with those in larger countries - ANSWER to look outside their local market for investment opportunities. A is correct. Globalisation occurs as investors develop a growing tendency to look outside their local markets for better portfolio diversification and higher returns. B is incorrect. The decision to hedge various risks will depend on the individual investor's needs and beliefs, not the extent of globalisation. C is incorrect. Globalisation gives all investors more opportunities but does not favour one group over another. The goal of all economic systems is to: efficiently allocate scarce resources to their most productive uses. produce enough goods and services to satisfy the desires of all consumers. support government spending on public services, such as education, defence, and infrastructure. - ANSWER efficiently allocate scarce resources to their most productive uses The goal of all economic systems is the efficient allocation of scarce resources to their most productive uses. People have an unlimited desire for goods and services, but resources are limited. Economic systems must address three questions: (1) What should be produced? (2) How should it be produced? (3) Who should receive what is produced? The goal is to answer these questions in a way that best satisfies consumers' needs An individual who helps buyers and sellers find and trade with one another is a(n): broker. dealer. auditor. - ANSWER Broker Securities regulations are created by: legislative bodies. individual investors. government agencies. - ANSWER Government Agencies The CFA Institute Code of Ethics requires members to: protect clients' interests at all times and in all situations. encourage competitors to increase their levels of competence. ensure investment recommendations are similar across an industry. - ANSWER encourage competitors to increase their levels of competence. An employee is assigned a complicated task by her supervisor but believes she does not have the technical skills to carry it out. The employee should: refuse to carry out the assignment. carry out the work as best as she can. get a co-worker to do it and take credit for the work. - ANSWER Refuse to carry out the assignment Investment advisers have an ethical obligation to: protect their own interests. exercise independent judgment. sell products with the highest fees. - ANSWER Exercise independent judgment Based on the CFA Institute Standards of Practice, investment advisers should manage a client's investment portfolio the same way they would manage: their own assets. other client accounts. the account if managed by a competitor. - ANSWER Their own assets During a job interview, a potential employer described the CFA Institute Code of Ethics as "a set of principles establishing rules governing ethical behaviour required of investment professionals toward their clients and employers". Does this description fully capture the Code of Ethics' requirement to act in an ethical manner? Yes No, the Code of Ethics also requires ethical behaviour when dealing with potential clients No, the Code of Ethics also requires ethical interaction with all capital market participants - ANSWER No, the code of ethics also require ethical interaction with all capital market participants Regulators often seek public consultation prior to the implementation of new regulations in order to: educate consumers and service providers on the new rules. improve the final rules by undertaking a cost-benefit analysis. ensure that the new rules are favourable to those likely to be affected. - ANSWER Improve the rules by undertaking a cost-benefit analysis Regulations prohibiting front running are types of: trading rules. operational rules. sales practice rules. - ANSWER Trading rules Regulators help capital markets do all of the following except: reduce investment risk. allocate capital to productive use. ensure investors are treated equally. - ANSWER Ensure investors are treated equally Net capital rules are put in place to prevent all of the following except: global financial contagion. losses experienced by firms. the use of excessive leverage. - ANSWER losses experienced by firms The processes by which regulations are developed: are similar across the globe. vary widely from informal to formal. are standardised across the various jurisdictions within a country. - ANSWER Vary widely from informal to formal A store owner recently turned down a substantial cash offer for his store and the land on which the store is located. Although the store owner considered the offer to be fair, he wanted to continue running the business. This year, his business has incurred costs for merchandise sold; wages paid to workers, including his own salary; utilities; and property taxes. When determining the business's accounting profit for the period, he is most likely to correctly exclude which of the following: his own salary. property taxes. the opportunity cost of the land and store. - ANSWER The opportunity cost of the land and the store A company is in the large shipbuilding industry with most of its operating costs fixed. The company has not used any debt to finance its operations. The operating leverage for such a firm is most likely: low. high. zero. - ANSWER High The notion of scarce economic resources: applies only to undeveloped nations. gives rise to choices determined by opportunity costs. applies when the amount of freely available goods exceeds the amount people desire. - ANSWER Give rise to choices determined by opportunity costs The crowding out effect will most likely lead to higher: tax revenues. interest rates. private investment. - ANSWER Interest rates Which of the following actions taken by a central bank is best described as expansionary? Increasing its policy rate Purchasing government bonds Increasing the reserve requirement - ANSWER Purchasing government bonds A government implements a policy that encourages consumers and businesses to increase spending and investment. Those who benefit from this additional spending, in turn, increase their own spending. The mechanism by which the initial increase in spending increases total spending by a greater amount is known as the: multiplier effect. inflationary effect. financial contagion effect. - ANSWER Multiplier effect An obstacle to the alignment of international business cycles is the existence of international: policy forums. free trade zone agreements. restrictions on capital flows. - ANSWER Restrictions on capital flows The broadest-based measure of a nation's inflation rate is provided by the: implicit GDP deflator. consumer price index (CPI). producer price index (PPI). - ANSWER Implicit GDP deflator The US dollar is currently the world's most dominant reserve currency. If the US dollar was not a reserve currency, the competitive position of US exporters would most likely be: weaker. stronger. unaffected. - ANSWER Stronger The theory of purchasing power parity states that the exchange rate between any two countries will adjust to reflect: the price levels between them. their current account balances. any arbitrage opportunities between their exchange rates. - ANSWER The Price levels between them A US merchant purchases wine from a vineyard outside of Paris. The wine is transported to the United States on a Canadian ship. The Canadian ship is insured by an insurance company incorporated in England. An export would be reported by: France only. France, England, and Canada. United States, France, England, and Canada. - ANSWER France, England, And Canada Country X has a comparative advantage for a good over its trading partner, Country Y. This advantage means that relative to Country Y, Country X: is a net importer of the good. has imposed a quota on the good. produces the good more efficiently. - ANSWER Produces the good more efficiently To improve the usefulness of ratio analysis, an analyst should calculate ratios and: focus on the ratios that have increased from the previous year. compare the company's current performance with that of its competitors. compare the company's current and prior performance with that of its competitors. - ANSWER compare the company's current and prior performance w/ that of its competitors. Unpaid operating expenses, such as the utilities bill for the last month of the year, are included in: operating expenses when paid. accounts receivable in current assets. accrued expenses in current liabilities. - ANSWER Accrued expenses in current liabilities Which of the following cash outflows on a company's cash flow statement is likely to be considered a recurring activity? Amounts used to: pay wages. purchase equipment. repay debt principal. - ANSWER Pay Wages An investor is deciding between two projects, both of which have an initial cost of £5,000. One project will return £10,000 in three years with a 5% discount rate and the other project will return £9,500 in two years with a 3% discount rate. The investor determines the first project is worth £8,638 today, whereas the second project is worth £8,955 today, and he determines to invest in the second project. In deciding between the projects, the investor is most likely using the: future value. present value. net present value. - ANSWER Present Value A manager with a $1,000 budget is considering two potential projects with initial cash outflows of $500 each. Project 1 will pay $1,240 in nine years with a 5% discount rate and has a net present value (NPV) of $799 - $500 = $299. Project 2 will pay $750 in three years with a 15% discount rate and has an NPV of $493 - $500 = $-7. The manager should most likely invest in: Project 1. Project 2. both Projects 1 and 2. - ANSWER Project 1 Considering two normal distributions, the curve with thinner tails most likely represents the: same probability of extreme outcomes. reduced probability of extreme outcomes. increased probability of extreme outcomes. - ANSWER Reduced probability of extreme outcomes Assume that a deposit into a savings plan earns compound interest. Keeping other factors the same, the future balance of the deposit will most likely be greater if the interest on the deposit: [Show More]

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