CFA Practice Exam Part 5

1. At which stage in the trading process is cash exchanged for securities between parties in a given security trade?
 (a) Settlement
 (b) Confirmation
 (c) Clearing

Correct Answer: a

2. A consumer pays off a car loan held by a bank with which he has no other business. Which of the following is the most appropriate document management practice for the bank to follow?
(a) Return all documents to the consumer
(b) Shred all documents related to the transaction
(c) Determine which documents to retain and which to dispose of


Correct Answer: c

3. Which of the following is not a factor to consider in a document classification system?
(a) Direction in which documents flow
(b) Ensuring that all documents are standardized
(c) Source of the document

Correct Answer: b

4. The possibility that a portfolio manager will lose money because the bond valuation model he uses is flawed is an example of:
(a) operational risk
(b) investment risk
(c) compliance risk 

Correct Answer: a


5. A limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify:
(a) the probability that a loss could occur
(b) a time frame for potential losses
(c) the maximum loss that could occur


Correct Answer: c

6. A fund manager does not compare his portfolio with the benchmark in terms of:
(a) performance 
(b) composition
(c) fees


Correct Answer: c

7. A fund manager’s alpha is that part of the fund’s return that can be attributed to:
(a) the market
(b) skill
(c) luck


Correct Answer: b

8. Which of the following is considered an institutional investor?
 (a) Accredited investor
 (b) Sovereign wealth fund 
(c) Separately managed account


Correct Answer: b

9. Diversification will not help reduce a portfolio’s:
(a) systematic risk 
(b) specific risk
(c) overall risk


Correct Answer: a

10. Compared with passive investment management, active investment management will involve:
(a) tracking a benchmark
(b) market timing
(c) lower transaction costs


Correct Answer: b