Question

Standards of Practice Handbook Exam, Eleventh Edition Question 35 of 75 Chuen recently began his professional career as an investment adviser. Prior to joining his firm, Chuen went back to school, earned an MBA, and passed all three levels of the CFA exam. Initially, he discusses all recommendations being made to his clients with his supervisor to ensure they are suitable with the clients' investment policy statements. Chuen recommends one particular international growth fund to several clients that focused on several of the larger emerging market countries. The fund has fees comparable to its peers' fees, has a stable portfolio management team, and has consistently ranked in the top percentile for quarterly and annual returns. Within the first year of having clients invest in this fund, one of the countries experiences a major economic collapse brought on by a change in governmental leaders, which causes the fund to fall by 55%. Which of the following statements is most likely true? Chuen's recommendation complied with the standard on diligence because the change in leaders was not known at the time of the recommendation. Chuen's recommendation violated the standard on diligence because it included an investment with potential downside risk. 0 Cheun's recommendation violated the standard on diligence because he did not anticipate the economic collapse of a new government. SUBMIT

Answer 1

It is seen that the fall took place within one year of investment and the loss was as high as 55%. This shows that the exposure on one single country was high. Also, the fall has occurred within one year

The investment adviser had to foresee the likely political changes in the short term and impact ts on the fund suggested. Hence, in the given case, Cheun's recommendation violated the standard on diligence because he did not anticipate the economic collapse of a new Government.

The answer is option 3.