- CFA Exams
- CFA Level I Exam
- Topic 10. Ethical and Professional Standards
- Learning Module 3. Guidance for Standards I-VII
- Subject 7. Standard III (A) Loyalty, Prudence, and Care
CFA Practice Question
Which of the following is (are) not prohibited by the loyalty rule?
II. defraying administration expenses
III. stock purchases to prevent takeover bids
IV. lending below prevailing interest rates
I. purchases of property to finance the employer
II. defraying administration expenses
III. stock purchases to prevent takeover bids
IV. lending below prevailing interest rates
Correct Answer: II
User Contributed Comments 14
| User | Comment |
|---|---|
| Rajain | if stock purchase to prevent takeover bids helps the overall interest of shareholders, why should it be restricted? |
| yanpz | Why "purchases of property to finance the employer" is prohibited? I thought it's for the employer's good. |
| cbb1 | Loyalty to trust beneficiaries (i.e., pension plan participants) and not to employer, thus, stock purchases violates loyalty rule. There have been legal cases on this since current employees (plan participants) may actually favor stock purchases in this instance to preserve jobs, but the duty of loyalty indicates objective is risk-return of investment trust. Defraying administrative expenses of trust is OK under loyalty. |
| faith | defraying admin expenses is just use of "soft dollars" and it isn't prohibited as long as it is disclosed to the client. |
| 0is4eva | defray = provide money to pay costs |
| Challs | pay attention here...the question ask which is "NOT" prohibited... |
| StanleyMo | defraying administration expenses = To undertake the payment of (costs or expenses); pay |
| saltnvinegar | why is lending below prevailing interests rates a problem? Lending below the interest rate is up to the lender, at least that's what I thought. |
| charliedba | You would not be loyal to your employer if you lend below the prevailing rate. |
| wundac | You mean you would not be loyal to the client. Key word is Loyalty to client. If it looks like it is not beneficial to client it violates the Loyalty Rules |
| rhardin | I am still confused... I would LIKE to be lended to below the prevailing rate (aka, borrow at a below-prevailing rate). My interest would be less! |
| suzette | Lending the client's money below the prevailing interest rate does not benefit the client/beneficiary. |
| ericczhang | I'm still not entirely sure what "purchases of property to finance the employer" even means. Does it mean that you use client money to purchase property or collateral that benefits your employer? |
| nabilhjeily | true eric.. that is what it means |