CFA Practice Question

There are 361 practice questions for this study session.

CFA Practice Question

Which of the following is (are) not prohibited by the loyalty rule?

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
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