CFA Investment Practice Exam

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• Passive investment management is closely associated with:
• When the economy is said to be "in a trough," it is typically characterized by:
• Which of the following is one of the largest segments of commercial real estate investments?
• What is one of the consequences of a regulatory failure?
• Rebalancing a portfolio is the process of:
• What is the characteristic nature of a credit default swap?
• If the US dollar were not a reserve currency, how would the competitive position of US exporters likely change?
• Seasoned equity offerings (SEOs):
• A government seeking to reduce the level of aggregate demand through fiscal policy will most likely increase:
• Investment advisers have a responsibility to:
• At which stage in the trading process is cash exchanged for securities?
• If an employee believes she lacks the necessary skills for a complicated task assigned by her supervisor, what should she do?
• Which of the following documents are required to be held in their original and physical form?
• What type of firm is classified as a sell-side firm?
• What is a typical characteristic of hedge funds compared to mutual funds?
• Which investment strategy is often described as minimizing expenses while tracking a market index?
• What is a primary feature of real estate investment trusts (REITs)?
• If a chief investment officer copies client contacts to aid a new business, he creates a conflict of interest with?
• Unpaid operating expenses at year-end are classified as:
• What type of bond has a coupon rate linked to a reference rate such as Libor?
• What term describes the potential to incur a financial loss due to uncertainties in investment outcomes?
• How does a change from €0.75/$1 to €0.80/$1 affect the exchange rate?
• A document that provides the precise instructions for actions necessary to achieve a desired outcome is most likely a:
• Regulators in capital markets do not seek to:
• What is the purpose of a capitalisation-weighted index?
• Settlement in a derivatives contract is a reference to the:
• What is a significant limitation of a value at risk (VaR) model regarding its inputs?
• An example of a corporate action that increases the number of shares outstanding is a:
• To enhance ratio analysis, an analyst should compare current performance with:
• Who bears the risk of the investment portfolio in a defined benefit plan?
• Generally, when compared with purchasing equity in a foreign company, the benefit of purchasing global depositary receipts (GDRs) is:
• What is the primary objective of the risk management function in a firm?
• Risk for an investment firm can be defined as what?
• When a country has a comparative advantage, it indicates that it:
• Economies that use resources where they are most valuable are said to be:
• What distinguishes hedge funds from other types of investments?
• What type of partner in a private equity structure generally makes operational decisions?
• Debt securities that mature in 12 years are referred to as:
• What is the primary aim of risk management in investment portfolios?
• What is a primary characteristic of good policy documentation?
• What does "going public" refer to for a company?
• Why might an investor be unlikely to purchase a physical commodity such as corn?
• What is a primary reason regulators seek public consultation before implementing new regulations?
• When used as a risk management tool, the use of derivatives contracts most likely results in a:
• When adding commercial real estate to a traditional debt and equity portfolio, what is the investor most likely expecting?
• Which of the following is considered an indirect investment?
• What is the legal contract that outlines the terms of a bond called?
• Compliance policies addressing corruption should extend to which of the following?
• What is the main purpose of a fact sheet in hedge fund management?
• Which of the following reflects the total spending effect when consumers increase spending?
• Which of the following is a potential drawback of seasoned equity offerings?
• Which measure provides the broadest indication of a nation's inflation rate?
• Where is a secondary offering of shares most likely issued?
• What mechanism describes how an initial increase in spending leads to a greater total increase in spending?
• What is a primary role of a broker in financial markets?
• What characterizes a natural monopoly?
• Which of the following best describes human resources in the context of investment firms?
• What do investors typically prefer in their investment choices?
• Net capital rules aim to prevent which of the following?
• Which activity aligns with the principles of the CFA Institute Code of Ethics?
• What is the primary benefit for a buyer of a credit default swap (CDS)?
• Generally, using a price-to-earnings ratio to value common stock is most likely a:
• What is the obligation of the seller of a call option on a stock upon exercise?
• In which type of investment firm would the sales and client relations department be most likely to exist?
• Which term describes the strategy used when a fund manager is trying to outperform a benchmark index?
• A proposed regulation might not be implemented due to what possible reason?
• From a compliance perspective, which tax management practice is considered an acceptable risk?
• Effective allocation of resources in an economic system helps in addressing which fundamental questions?
• Which of the following activities is classified as a cash outflow from investing activities?
• Which of the following is a common characteristic of private equity investments?
• How does ethical conduct affect trust in global financial markets?
• In terms of financial ratios, which one may be a clear indicator of a company's operational efficiency?
• What is a defining characteristic of ultra-high-net-worth investors?
• Which principle best describes the diminishing satisfaction experienced from additional consumption of a good?
• Globalisation in the investment industry is primarily associated with investors' tendency to do what?
• Which of these is most likely a characteristic of preferred stock but not of common stock?
• What is a typical feature of actively managed open-end mutual funds?
• What is a key advantage of investing in commodities?
• Which risk management technique involves compiling and analyzing data from various sources?
• In a global context, what do barriers like tariffs and import quotas primarily impact?
• For a hedge fund, what is referred to as the high-water mark?
• In relation to a portfolio, what does the term 'expected risks' refer to?
• The coupon rate of a fixed-rate bond most likely reflects which of the following?
• In a capitalisation-weighted security market index, how is the weight assigned to each security determined?
• Securities regulations are primarily developed by which of the following entities?
• What is the key assumption underlying simple interest?
• An investment industry participant who facilitates trades by buying when others sell is known as a?
• What should a lottery winner do if the prize is guaranteed and can be taken now or later?
• What is considered market risk?
• A hedge fund manager's monthly newsletter that includes summaries of performance is an example of what?
• Based on risk, which of the following securities is most likely to produce the highest long-run return?
• What is the relationship between ethical behavior and trust in investment markets?
• How do client cash inflows and outflows affect the calculation of holding-period returns using the time-weighted rate of return method?
• The most numerous type of investors are:
• Why is it generally not appropriate for an investor with a portfolio of domestic risk-free government bonds to benchmark against an investment-grade corporate bond index?
• Which economic concept describes the effect of increasing fertilizer on tomato production in fields?
• In the context of fiscal policy, what is considered a tool to reduce inflation?
• A manager aiming to build a well-diversified portfolio with a specific active investment strategy is likely to invest in which type of fund?
• A company that wants to convert fixed-rate interest payments on an outstanding loan to floating-rate interest payments will most likely enter into which of the following interest rate swaps?
• Why is document retention critical in investment firms?
• If personal income rises for the first time in nine months, the economy is most likely to be:
• What is the primary role of sales traders within investment firms?
• Which position is primarily responsible for cash management within a firm?
• What does asset turnover measure in a company?
• In the context of equity offerings, what does ‘dilution’ refer to?
• A portfolio manager's skill can be measured by the fund's:
• Proprietary trading is most likely carried out by which type of market participant?
• Which statement accurately describes the information ratio?
• The primary purpose of a stock dividend is to:
• During the "assess and prioritise risks" stage, which of the following is crucial for selecting key risk measures?
• What type of position indicates that an investor has purchased securities with the expectation that their value will rise?
• When a company issues new shares to raise capital, it typically occurs during what type of offering?
• What do investment advisers improve by adhering to ethical guidelines?
• Typically, the security issued by a foreign firm that is purchased for the purpose of issuing a global depositary receipt (GDR) is:
• According to the CFA Standards, investment advisers should manage a client's portfolio as they would manage:
• What do transactions through central counterparties, such as clearinghouses, help to reduce?
• When the buyer of a call option on a stock exercises the option, the seller of the call option most likely must:
• A merchant imports wine from France shipped on a Canadian vessel, insured by an English company. Where should this export be reported?
• Which function is typically NOT associated with a treasurer in a firm?
• In the context of microeconomic decision making, whose focus is primarily on local labor supply and demand?
• How are investors protected from higher inflation in an inflation-linked bond?
• Who is at risk of call risk in a falling interest rate environment?
• What is a common characteristic of pooled investment vehicles?
• What is the primary objective of using a broker in securities trading?
• Which of the following is NOT a key to effective policy documentation for internal use?
• What is described as an account where the capital of two or more investors is pooled together and jointly managed?
• Which of the following will help the manager of an actively managed fund achieve superior returns?
• For futures contracts, the process of marking to market means that profits and losses are settled:
• If contributions to a tax-advantaged retirement account are tax deductible, what does this imply?
• When calculating accounting profit, which of the following should be excluded?
• What creates a situation where no single firm can set prices above the competition in a natural monopoly?
• Which of the following practices aids in the effective management of investment decisions?
• For whom are performance fees in hedge funds typically applicable?
• When compared with common stock, preferred stock most likely has:
• Which risk response strategy is considered most appropriate for risks identified with low expected frequency and low expected severity?
• Which financial instrument allows a company to manage its interest rate exposure effectively?
• What type of payment structure does a fee-only investment adviser have?
• A market in which investors trade with dealers at the prices quoted by dealers is called a(n):
• Which term refers to the unnecessary risk taken when options are available to avoid it?
• Which trading locations or mechanisms are commonly referred to as dark pools?
• Which action will most likely reduce the number of a company's shares outstanding?
• Which market is primarily involved in the issuance of new securities?
• The progressive loss of satisfaction from consuming multiple units of a good is known as what?
• Regulation helps to reduce the risk of systemic financial market failure caused by which of the following?
• According to economic theories, reduced capital flow restrictions may:
• What constitutes a conflict of interest for a financial analyst?
• The principle of encouraging competitors to improve their competence is a characteristic of which code?
• In risk measurement, which method primarily assesses the return dispersion?
• Why is regulation important in financial markets?
• An investor measuring risk as the variability of returns would likely use which metric?
• What is used to decompose a fund manager's performance into various sources of return?
• A portfolio constructed to meet an investor's needs should:
• What typically happens to interest rates when the central bank implements policies to stimulate economic growth?
• Compared to GDP calculated using the expenditure approach, gross domestic income will likely be:
• The CFA Institute Code of Ethics emphasizes which of the following mandates for its members?
• The risk that coupon payments must be reinvested at lower market rates is known as what?
• What factor is key to the definition of allocational efficiency in economics?
• If a company is liquidated, proceeds from asset sales are most likely distributed to common shareholders:
• What characterizes a competitive financial market?
• A company with fixed operating costs is likely to experience:
• An investor in a stock option contract that gives her the right to deliver the stock at the exercise price is:
• What is referred to as debt securities with maturities of less than one year?
• A transaction in which a large block of securities is traded between two investors will most likely occur in a(n):
• In a year of strong worldwide economic growth, the overall sum of the balance of payments accounts for all countries is:
• What type of rules do regulations prohibiting front running fall under?
• The services of a family office are typically used by:
• Which statement best describes a commingled account?
• What type of investment is characterized by performance-based manager compensation?
• Which of the following corporate actions will affect the number of outstanding common shares of a company?
• A shortfall in investment returns will most likely be of highest concern to:
• Attribution analysis requires knowledge of the proportion of each asset found in the:
• In forward and futures contracts, the risk of non-fulfillment of contract terms is most likely borne by:
• Internal auditors in a company's risk management function should ideally report to whom?
• Which type of investment is typically less transparent?
• Which investment type typically does not trade on formal exchanges?
• Indirect investments allow individual investors to do what compared with direct investments?
• What does the theory of purchasing power parity suggest about exchange rates?
• Why are reports from investment research providers helpful to investors?
• An example of a common stock valuation method that relies on forecasted dividends is:
• In the investment industry, liquidity risk refers to what?
• A decrease in consumer confidence is likely to lead to which economic condition?
• What is a key control to protect systems and business information?
• Based on historical pricing data, how can one describe the cost of hamburgers in Los Angeles compared to New York?
• A document that states that a company is in favour of fair employment practices is most likely a:
• In financial regulation, the objective of operational rules includes:
• What is subtracted from a portfolio's return when calculating the Sharpe ratio?
• How do the processes by which regulations are developed vary globally?
• In investment strategy, what does diversification aim to achieve?
• What is one key factor that promotes disclosure and transparency in financial markets?
• What is one advantage of including international investments in a portfolio?
• Retail investors are often served with standardized investment services because they:
• Which project should an investor choose based on a higher net present value (NPV)?
• What is the primary focus of microeconomic decision making regarding labor and wage rates?
• What is the primary purpose of ethical behavior among investment industry members?
• To achieve better investment outcomes, what operational advantage is most beneficial for fund managers?
• Which of the following is a benefit of dispute resolution in the regulatory process over a formal legal process?
• In a private equity structure, who is responsible for raising the capital?
• What does being "benchmarked against" a stock index imply for an active fund manager?
• Which action by a central bank is considered expansionary?
• Unique assets such as real estate are typically sold in which type of market?
• Which type of investor is typically characterized by significant holdings and the ability to influence market pricing?
• The impact of low interest rates is often to:
• In which of the following situations does a company receive additional capital when its shares are sold?
• A bank's potential lack of sufficient capital reserves to meet regulatory requirements is an example of which type of risk?
• An investment characterized by professional management of pooled funds is most likely a:
• Which of these cash outflows is typically considered a recurring activity for a company?
• What is generally true about mutual funds and management fees?
• What key factor can lead to a regulatory failure?
• Which of the following is often considered a step in effective risk management?
• What benefit does the investment industry provide to savers and borrowers?
• In 2011, which country was most likely to experience a self-adjusting change in its exchange rate to correct its current account deficit?
• The crowding out effect tends to lead to higher:
• During an interview, a potential employer described the CFA Institute Code of Ethics. Does this description fully convey its requirements?
• Which of the following sources of a portfolio's return should even out over the long term?
• Why might a regulator hesitate to implement new market regulations?
• For a company in the large shipbuilding industry with no debt, the operating leverage is likely to be:
• What is the typical role of a dealer in a security market?
• The fixed payment on an amortizing loan consists of which two components?
• What is one of the main goals of establishing policies in risk management?
• Which statement accurately describes zero-coupon bonds?
• Which option best defines a company's level of risk?
• Which of the following is considered a component of document management?
• When a product is sold on credit, the company will report an increase in:
• What is the primary purpose of increasing personal income tax rates as a fiscal policy?
• What principle of the CFA Institute Code of Ethics is violated when a firm ignores compliance due to lack of complaints?
• Investors who take a total-return perspective:
• What is often a key reason for fluctuations in exchange rates according to purchasing power parity?
• Who has the authority to create securities regulations?
• Who typically manages a pooled investment?
• Market impact is a transaction cost related to:
• What is a primary obstacle to the alignment of international business cycles?
• Who is responsible for managing constraints created by laws and regulations?
• According to monetarist theory, inflation is related to which of the following?
• When an equity analyst buys shares for his own account while making a buy recommendation, this creates a conflict of interest with?
• In a price-weighted index, how do higher-priced securities influence the value of the index?
• Which type of pooled investment vehicle generally has the lowest level of fees and costs?
• In an amortizing mortgage, which part of the fixed payment decreases over time?
• The benefit of entering a swaps contract often includes:
• Compared to the industry, what conclusion can be drawn about the company's ability to use assets effectively?
• The notion of scarce economic resources gives rise to:
• What does a normal distribution with thinner tails indicate about outcomes?
• What is the focus of the 'measure relative risk' step in performance evaluation?
• What method is most likely used by an investor to determine the worth of a project today?
• When is it appropriate to calculate a time-weighted rate of return?
• What is a key step in the performance evaluation process?
• Which economic concept indicates the need for choices due to limited resources?
• When businesses are replacing obsolete equipment and consumers are beginning to make purchases, the business cycle is likely:
• What issue could arise from selling shares in a secondary market?
• Documents facilitating a regular review process that contain obligations, past actions, and future requirements are called:
• How can alternative investments be characterized compared to traditional assets?
• An organisation's travel policy document is classified as which type of document?
• Which rule focuses on managing systemic risk in financial markets?
• Which of the following is NOT a function of the investment industry?
• Who is most likely to issue a Treasury security?
• What is the significance of performance benchmarks in investment management?
• Which of the following represents a compliance risk?
• What is a common reason for investors to utilize investment trusts?
• One of the main differences between an exchange and an alternative trading system is that an alternative trading system:
• What best describes a broker-driven market?
• What do information barriers within a financial services firm primarily aim to control?
• In the context of ethical behavior, what does trust facilitate among investment participants?
• What is the main goal of all economic systems?
• Which parent has a payment system that occurs on a regular weekly basis?
• Which factor could potentially lead to higher returns for investors in hedge funds?
• Which of the following is an example of an ad hoc document?
• What is the valuation methodology for fixed-rate bonds and zero-coupon bonds?
• What does a statement requesting all employees to refrain from trading based on non-public information exemplify?
• What is a primary function of a stock market index?
• When do investors typically pay taxes on capital gains from owning shares?
• The economic principle indicating that resource allocation can be optimized through comparative advantages is known as:
• Which investment vehicle allows public market exposure specifically to real estate?
• Which of the following acts as an agent when filling orders for clients?
• An individual who assists buyers and sellers in trading is known as a:
• Which of the following parents' payment structure can be described as an annuity?
• An increase in international trade results in:
• Which strategy focuses on tolerating certain risks within an organization?
• How can the future balance of a deposit be maximized when earning compound interest?
• If the securities contained within a benchmark meet an investor's stated risk and return needs, the benchmark has met which of the following criteria?