CFA Practice Exam Part 3
1. The feature of a well-functioning investment industry that gives investors the ability to quickly buy and sell a significant amount of an investment without having a material impact on the price is described as:
(a) liquidity
(b) competitive markets
(c) risk transfer
Correct answer: a
2. According to fundamental ethical and professional principles applicable to the investment industry, which group should have its interests ranked first?
(a) Clients
(b) Employers
(c) Co-workers
Correct answer: a
3. Regulators often seek public consultation prior to the implementation of new regulations in order to:
(a) ensure the new rules are favorable to those likely to be affected
(b) educate consumers and service providers on the new rules (c) improve the final rules by undertaking a cost-benefit analysis
Correct answer: c
4. A financial advisory firm that implements internal policies regarding information barriers, suitability standards, and restrictions on self-dealing is addressing issues related to which of the following types of regulation?
(a) Sales practices rules
(b) Trading rules
(c) Disclosure rules
Correct answer: a
5. The best financial statement to use to find information about what a company owns and owes others is called the:
(a) income statement
(b) balance sheet
(c) cash flow statement
Correct answer: b
6. If two variables do not have a strong (linear) relationship, the correlation coefficient between the two variables will be closest to:
(a) 0
(b) –1
(c) +1
Correct answer: a
7. If a decrease in the selling price of a company’s only product results in an increase in the company’s total revenue, the demand for the company’s product is:
(a) elastic
(b) unit-elastic
(c) inelastic
Correct answer: a
8. Which of the following actions taken by a central bank is expansionary?
(a) Increasing the reserve requirement
(b) The purchase of government bonds
(c) Increasing its policy rate
Correct answer: b
9. Which of the following government actions will most likely lead to an increase in the level of aggregate demand? A reduction in:
(a) transfer payments
(b) public spending on social goods and infrastructure
(c) the capital gains tax
Correct answer: c
10. If Mexico is running a large current account deficit with Canada, which of the following will most likely occur?
(a) Canada will reduce its imports from Mexico
(b) The Mexican peso will depreciate relative to the Canadian dollar
(c) There will be an increase in Canadian exports to Mexico
Correct answer: b
(a) liquidity
(b) competitive markets
(c) risk transfer
Correct answer: a
2. According to fundamental ethical and professional principles applicable to the investment industry, which group should have its interests ranked first?
(a) Clients
(b) Employers
(c) Co-workers
Correct answer: a
3. Regulators often seek public consultation prior to the implementation of new regulations in order to:
(a) ensure the new rules are favorable to those likely to be affected
(b) educate consumers and service providers on the new rules (c) improve the final rules by undertaking a cost-benefit analysis
Correct answer: c
4. A financial advisory firm that implements internal policies regarding information barriers, suitability standards, and restrictions on self-dealing is addressing issues related to which of the following types of regulation?
(a) Sales practices rules
(b) Trading rules
(c) Disclosure rules
Correct answer: a
5. The best financial statement to use to find information about what a company owns and owes others is called the:
(a) income statement
(b) balance sheet
(c) cash flow statement
Correct answer: b
6. If two variables do not have a strong (linear) relationship, the correlation coefficient between the two variables will be closest to:
(a) 0
(b) –1
(c) +1
Correct answer: a
7. If a decrease in the selling price of a company’s only product results in an increase in the company’s total revenue, the demand for the company’s product is:
(a) elastic
(b) unit-elastic
(c) inelastic
Correct answer: a
8. Which of the following actions taken by a central bank is expansionary?
(a) Increasing the reserve requirement
(b) The purchase of government bonds
(c) Increasing its policy rate
Correct answer: b
9. Which of the following government actions will most likely lead to an increase in the level of aggregate demand? A reduction in:
(a) transfer payments
(b) public spending on social goods and infrastructure
(c) the capital gains tax
Correct answer: c
10. If Mexico is running a large current account deficit with Canada, which of the following will most likely occur?
(a) Canada will reduce its imports from Mexico
(b) The Mexican peso will depreciate relative to the Canadian dollar
(c) There will be an increase in Canadian exports to Mexico
Correct answer: b
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