Free CFA Level I Ethical and Professional Standards Practice Questions
Ethical and professional standards is the highest-weighted single topic on the CFA Level I exam at 15-20% (CFA Institute). Questions test the Code of Ethics, Standards of Professional Conduct, and the Global Investment Performance Standards (GIPS).
Sample Questions
Question 1
Easy
Widespread ethical behavior by investment professionals is most likely to strengthen trust in financial markets because such behavior:
Solution
C is correct. When investors trust that financial professionals consistently act with integrity and in clients' best interests, they are more willing to commit capital to markets. Greater participation deepens market liquidity, narrows risk premiums, and lowers the cost of capital for issuers. The CFA Institute curriculum identifies this mutual benefit (lower capital costs for issuers, better access for savers) as a core reason that ethics matter for the functioning of the financial system.
Question 2
Medium
Under GIPS, a 'carve-out' is best defined as:
Solution
C is correct.
A carve-out under GIPS is a segment of a larger multi-asset portfolio that is separated and presented as a single-asset strategy composite. For example, the equity portion of a balanced fund could be carved out and presented as part of an equity composite. GIPS requires that carve-outs have their own cash allocation and be separately managed with dedicated cash to be included in composites.
A carve-out under GIPS is a segment of a larger multi-asset portfolio that is separated and presented as a single-asset strategy composite. For example, the equity portion of a balanced fund could be carved out and presented as part of an equity composite. GIPS requires that carve-outs have their own cash allocation and be separately managed with dedicated cash to be included in composites.
Question 3
Hard
Which of the following is the correct way to use the CFA designation after earning it?
Solution
A is correct.
Under Standard VII(B), the CFA designation must be used as an adjective following the charterholder's name — for example, 'Jane Doe, CFA.' Using 'CFA' as a noun ('a CFA' or 'is a CFA') is prohibited because it implies that 'CFA' is a professional category like 'doctor' or 'lawyer,' rather than a designation earned from CFA Institute. The correct usage treats 'CFA' as a post-nominal credential following the name.
Under Standard VII(B), the CFA designation must be used as an adjective following the charterholder's name — for example, 'Jane Doe, CFA.' Using 'CFA' as a noun ('a CFA' or 'is a CFA') is prohibited because it implies that 'CFA' is a professional category like 'doctor' or 'lawyer,' rather than a designation earned from CFA Institute. The correct usage treats 'CFA' as a post-nominal credential following the name.