Free CAIA Level II CAIA Ethical Principles Practice Questions
CAIA ethical principles at the Level II depth cover professional and fiduciary responsibilities in complex institutional settings, the eight ethical principles applied to real-world alternative investment dilemmas, and case studies of historical ethical breaches.
Sample Questions
Question 1
Easy
The CAIA ethical principles are most accurately characterized as which of the following?
Solution
D is correct. The CAIA ethical principles are principles-based rather than rules-based, meaning they emphasize acting in accordance with the spirit and intent of ethical conduct rather than seeking the minimum required by explicit rules. This approach requires judgment and an internalized commitment to ethical behavior.
Question 2
Medium
The concept of 'ethical relativism' poses a specific challenge for global investment professionals. Which of the following best describes that challenge?
Solution
C is correct. Ethical relativism is the view that moral standards are culture-dependent and that there are no universal ethical truths. For investment professionals operating across jurisdictions, this creates the challenge of determining whether to apply local norms that may differ from professional standards or to uphold a consistent set of principles globally.
Question 3
Hard
A CAIA charterholder serves as both the portfolio manager and the sole valuation officer for an illiquid private credit fund. Investors have no independent verification of NAV. Analyzing this situation through the lens of the CAIA ethical principles, which of the following best describes the primary ethical deficiency and the most appropriate structural remedy?
Solution
B is correct. When the same individual controls both investment decisions and the valuation of illiquid assets with no independent oversight, there is an inherent conflict of interest: the manager has incentives to inflate NAV to support fee calculations, fundraising, or redemption pricing. The CAIA ethical principles require that conflicts be identified and mitigated. Independent third-party valuation is the standard structural remedy, ensuring that NAV calculations are free from the manager's self-interest.