The Ethics & Professional Standards section is one of the most important areas of the CFA Level I exam, accounting for a significant portion of the total score. Ethics is not only tested in Level I but also carries through Levels II and III. A strong foundation in ethics helps candidates apply the CFA Institute’s Code of Ethics and Standards of Professional Conduct to real-world financial scenarios.
Below are 50 carefully designed CFA Ethics multiple-choice questions (MCQs) with answers and explanations. These will help you strengthen your knowledge, improve accuracy, and build confidence for the exam.
📘 CFA Level I Ethics MCQs (Batch 1: Questions 1–50 with Answers & Explanations)
Q1. According to the CFA Institute Code of Ethics, members must:
A) Place the interests of clients above their own.
B) Place their employer’s interests above clients.
C) Avoid all personal investments.
D) Always maximize profits.
✅ Answer: A
Explanation: The Code requires professionals to place client interests above their own and their employer’s interests. This ensures trust and integrity in financial markets.
Q2. A CFA charterholder recommends a stock to clients without disclosing that he owns shares of the same company. Which Standard is violated?
A) Misrepresentation
B) Conflict of Interest Disclosure
C) Duties to Employer
D) Fair Dealing
✅ Answer: B
Explanation: Failure to disclose ownership creates a conflict of interest, violating Standard VI(A): Disclosure of Conflicts.
Q3. Which of the following best describes the Standard on Fair Dealing?
A) Treat some clients better if they pay higher fees.
B) Treat all clients equally when disseminating recommendations.
C) Share recommendations only with institutional clients first.
D) Give priority to close friends and family.
✅ Answer: B
Explanation: Standard III(B): Fair Dealing requires investment professionals to treat all clients fairly when making recommendations.
Q4. A portfolio manager receives expensive gifts from a client after achieving high returns. What should the manager do?
A) Accept without reporting.
B) Decline all gifts.
C) Accept only if disclosed to employer.
D) Accept if under $100.
✅ Answer: C
Explanation: Gifts are acceptable if they do not compromise independence and are disclosed to the employer (Standard I(B): Independence and Objectivity).
Q5. A CFA candidate exaggerates past performance in a job interview. Which standard is violated?
A) Misconduct
B) Misrepresentation
C) Integrity of Capital Markets
D) Duties to Employer
✅ Answer: B
Explanation: Making false claims is misrepresentation under Standard I(C).
Q6. Using material nonpublic information to trade is a violation of:
A) Misconduct Standard
B) Integrity of Capital Markets
C) Loyalty, Prudence & Care
D) Professionalism
✅ Answer: B
Explanation: Standard II(A) prohibits use of material nonpublic information for personal gain.
Q7. Which of the following is required under Standard V(A): Diligence and Reasonable Basis?
A) Relying solely on company press releases.
B) Conducting independent research before making recommendations.
C) Accepting recommendations from colleagues without review.
D) Following only employer guidelines.
✅ Answer: B
Explanation: Professionals must have a reasonable and adequate basis supported by research.
Q8. Which of the following actions violates Standard III(C): Suitability?
A) Understanding a client’s risk tolerance before recommending investments.
B) Updating investment policies periodically.
C) Recommending a high-risk stock to a conservative investor.
D) Diversifying a client’s portfolio.
✅ Answer: C
Explanation: Suitability requires aligning recommendations with a client’s objectives and risk profile.
Q9. According to the Standards, members must maintain confidentiality unless:
A) The client is wealthy.
B) Disclosure is required by law.
C) The employer requests disclosure.
D) It involves a competitor.
✅ Answer: B
Explanation: Standard III(E): Preservation of Confidentiality allows disclosure only when required by law.
Q10. A CFA candidate claims he is a “CFA-certified analyst.” What’s wrong with this statement?
A) Nothing, it’s correct.
B) Only CFA charterholders can use “CFA” after their name.
C) Candidates may not use “CFA” designation until they pass all exams and meet requirements.
D) Both B and C.
✅ Answer: D
Explanation: Candidates cannot misrepresent status; only charter holders can use “CFA” properly.
Q11. An investment manager refuses to invest in a profitable company due to its involvement in child labor. Which Standard is MOST aligned with this decision?
A) Integrity of Capital Markets
B) Professional Misconduct
C) Code of Ethics: Integrity and Professionalism
D) Fair Dealing
✅ Answer: C
Explanation: Acting with integrity and promoting professionalism aligns with the CFA Code of Ethics.
Q12. Which of the following must a member disclose to clients?
A) Personal political views
B) Conflicts of interest that may impair objectivity
C) All personal investments
D) Private financial obligations
✅ Answer: B
Explanation: Standard VI(A) requires disclosure of all potential conflicts of interest.
Q13. A research analyst recommends a stock based on a friend’s “inside tip.” What’s violated?
A) Misrepresentation
B) Integrity of Capital Markets
C) Diligence and Reasonable Basis
D) Duties to Clients
✅ Answer: B
Explanation: Trading or recommending based on inside information violates Standard II(A).
Q14. An analyst circulates a draft report with material errors. Which Standard is violated?
A) Fair Dealing
B) Misrepresentation
C) Diligence and Reasonable Basis
D) Duties to Employer
✅ Answer: C
Explanation: Reports must be accurate and supported by thorough research (Standard V(A)).
Q15. A client insists on investing in a risky penny stock. What must the CFA member do?
A) Follow client orders without objection.
B) Refuse if it violates suitability standards.
C) Invest without documentation.
D) Recommend an alternative secretly.
✅ Answer: B
Explanation: Standard III(C): Suitability requires refusing unsuitable investments.
Q16. Members must not knowingly misrepresent:
A) Academic qualifications
B) Past investment performance
C) The CFA designation
D) All of the above
✅ Answer: D
Explanation: Standard I(C): Misrepresentation prohibits all types of misrepresentation.
Q17. Which of the following is required under Standard VII(A): Conduct as Participants in CFA Program?
A) Candidates must not discuss exam content.
B) Candidates may share exam recall notes online.
C) Candidates can disclose exam format publicly.
D) Candidates may guess test questions.
✅ Answer: A
Explanation: Disclosing exam content is strictly prohibited.
Q18. Which scenario reflects a violation of Independence and Objectivity?
A) Accepting company-paid travel for research without disclosure
B) Accepting a client’s small gift and reporting it
C) Using employer-provided research tools
D) Declining invitations from corporate executives
✅ Answer: A
Explanation: Accepting benefits that may impair objectivity violates Standard I(B).
Q19. When must members update clients’ investment policies?
A) Only at account opening
B) Annually or when client circumstances change
C) Never, unless asked
D) When market conditions shift
✅ Answer: B
Explanation: Standard III(C): Suitability requires periodic updates.
Q20. A member shares a client’s portfolio with their spouse. Which Standard is violated?
A) Confidentiality
B) Fair Dealing
C) Diligence
D) Misrepresentation
✅ Answer: A
Explanation: Standard III(E): Preservation of Confidentiality prohibits unauthorized disclosure.
Q21. A portfolio manager executes trades for himself before clients. This is called:
A) Insider trading
B) Front running
C) Backdating
D) Churning
✅ Answer: B
Explanation: Standard VI(B): Priority of Transactions prohibits trading ahead of clients.
Q22. Which is MOST accurate about the CFA Code of Ethics?
A) It applies only to charterholders.
B) It applies to all candidates and members.
C) It applies only in the USA.
D) It is optional for candidates.
✅ Answer: B
Explanation: Both candidates and members must follow the Code of Ethics.
Q23. Which Standard is violated if an analyst uses outdated financial data in a recommendation?
A) Misrepresentation
B) Diligence and Reasonable Basis
C) Suitability
D) Confidentiality
✅ Answer: B
Explanation: Reasonable basis requires use of current, accurate information.
Q24. A member posts research online without citing sources. What’s violated?
A) Plagiarism Standard
B) Professional Misconduct
C) Confidentiality Standard
D) Fair Dealing
✅ Answer: A
Explanation: Standard I(C): Misrepresentation prohibits plagiarism.
Q25. Which action would most likely violate the CFA Standards?
A) Recommending securities you personally own (with disclosure)
B) Accepting issuer-paid research without independence
C) Refusing unsuitable trades
D) Diversifying portfolios
✅ Answer: B
Explanation: Issuer-paid research often compromises independence and objectivity.
Q26. According to the Standards, members must NOT engage in:
A) Insider trading
B) Market manipulation
C) Misrepresentation
D) All of the above
✅ Answer: D
Explanation: All listed activities are violations of the CFA Standards.
Q27. A CFA charterholder guarantees a client that a portfolio will return 10% annually. What’s wrong?
A) Violates Suitability
B) Violates Misrepresentation
C) Acceptable if client agrees
D) Encouraged in competitive markets
✅ Answer: B
Explanation: Guarantees of return are misrepresentation.
Q28. Which scenario requires disclosure?
A) Analyst is invited to serve on company board.
B) Analyst owns minimal mutual fund units.
C) Analyst rents office space.
D) Analyst uses public data sources.
✅ Answer: A
Explanation: Board positions are potential conflicts (Standard VI(A)).
Q29. An investment firm must provide clients with:
A) Financial statements of the firm
B) Information about investment process and risks
C) Only successful recommendations
D) Employer’s tax returns
✅ Answer: B
Explanation: Transparency is required under Standard V(B): Communication with Clients.
Q30. Which of the following is acceptable under the Standards?
A) Trading on rumors
B) Using nonpublic information
C) Using public, verified research
D) Guaranteeing positive returns
✅ Answer: C
Explanation: Public and verified information is allowed.
Q31. A CFA candidate claims “CFA Level II certified.” What’s wrong?
A) Candidates may not imply certification until charter earned.
B) Level II completion = certification.
C) Level I candidates can use “CFA Level I.”
D) Nothing is wrong.
✅ Answer: A
Explanation: Candidates must clearly state their status without misrepresentation.
Q32. Which Standard applies when an analyst updates a model after a significant economic event?
A) Misrepresentation
B) Diligence and Reasonable Basis
C) Fair Dealing
D) Suitability
✅ Answer: B
Explanation: Analysts must revise research to maintain reasonable basis.
Q33. Which of the following demonstrates compliance with Suitability?
A) Recommending identical portfolios for all clients
B) Considering risk tolerance and investment objectives
C) Guaranteeing returns to conservative investors
D) Ignoring liquidity needs
✅ Answer: B
Explanation: Suitability requires individualized recommendations.
Q34. Which statement is TRUE regarding professional misconduct?
A) Only applies in workplace
B) Covers all professional and personal conduct
C) Applies only to CFA charterholders
D) Applies only during exams
✅ Answer: B
Explanation: Standard I(D): Misconduct covers all professional and personal behavior.
Q35. An analyst manipulates a model to favor their employer’s stock. Which Standard is violated?
A) Fair Dealing
B) Duties to Clients
C) Misrepresentation
D) Diligence and Reasonable Basis
✅ Answer: D
Explanation: This violates independence, diligence, and objectivity.
Q36. According to the Standards, how should client information be handled?
A) Shared with government freely
B) Disclosed without client approval
C) Kept confidential unless law requires otherwise
D) Published for transparency
✅ Answer: C
Explanation: Confidentiality must be preserved (Standard III(E)).
Q37. Which is MOST accurate about Standard II(B): Market Manipulation?
A) It prohibits any action to distort market prices.
B) It allows rumors to boost trades.
C) It allows manipulation in volatile markets.
D) It applies only to institutions.
✅ Answer: A
Explanation: Standard II(B) prohibits market manipulation of all kinds.
Q38. Which is acceptable?
A) Promising to outperform benchmarks
B) Disclosing use of third-party research
C) Trading ahead of clients
D) Misstating qualifications
✅ Answer: B
Explanation: Transparency about third-party research is ethical.
Q39. A CFA charterholder is arrested for tax evasion. Which Standard is violated?
A) Misrepresentation
B) Misconduct
C) Duties to Employer
D) Fair Dealing
✅ Answer: B
Explanation: Professional and personal misconduct violates Standard I(D).
Q40. Which of the following demonstrates compliance with Fair Dealing?
A) Releasing recommendations to all clients simultaneously
B) Giving early access to high-paying clients
C) Prioritizing friends
D) Withholding research from small investors
✅ Answer: A
Explanation: Standard III(B): Fair Dealing requires equal treatment.
Q41. A research report is copied word-for-word from another analyst without credit. What’s violated?
A) Misrepresentation (plagiarism)
B) Duties to Clients
C) Suitability
D) Independence
✅ Answer: A
Explanation: Copying without citation is plagiarism under Standard I(C).
Q42. A portfolio manager invests in derivatives without client approval. What’s violated?
A) Fair Dealing
B) Suitability & Client Instructions
C) Misrepresentation
D) Misconduct
✅ Answer: B
Explanation: Clients must consent to investment strategies.
Q43. Which of the following would MOST likely violate the Standards?
A) Keeping adequate research records
B) Backdating trade tickets
C) Documenting investment rationale
D) Updating client IPS
✅ Answer: B
Explanation: Backdating records is fraudulent.
Q44. According to the Standards, members must:
A) Act with integrity, competence, diligence
B) Maximize employer profits only
C) Always follow local customs even if unethical
D) Serve self-interest first
✅ Answer: A
Explanation: This is part of the CFA Code of Ethics.
Q45. Which of the following is considered professional misconduct?
A) Honest mistake in financial modeling
B) Minor clerical error
C) Fraudulent misrepresentation
D) Typographical errors
✅ Answer: C
Explanation: Fraudulent behavior violates Standard I(D).
Q46. Which scenario demonstrates compliance with Standards?
A) Analyst promptly corrects published report error
B) Analyst guarantees performance
C) Analyst withholds risk disclosures
D) Analyst uses nonpublic info
✅ Answer: A
Explanation: Correcting errors aligns with diligence and integrity.
Q47. Which action is required for compliance with Global Investment Performance Standards (GIPS)?
A) Misstate composite performance
B) Ensure performance is complete and comparable
C) Exclude poor-performing accounts
D) Backdate returns
✅ Answer: B
Explanation: GIPS requires full and fair performance reporting.
Q48. Which of the following is a violation of Standard VII(B): Reference to CFA Institute, the CFA Designation, and the CFA Program?
A) Claiming “CFA certified”
B) Correctly stating “Passed CFA Level I exam”
C) Using “CFA charterholder” if earned
D) Listing CFA designation after name
✅ Answer: A
Explanation: “CFA certified” is a misrepresentation.
Q49. A portfolio manager executes client trades after executing his own. This is:
A) Misrepresentation
B) Priority of Transactions violation
C) Fair Dealing
D) Market Manipulation
✅ Answer: B
Explanation: Clients’ trades must always come before personal trades.
Q50. Which best summarizes the CFA Code of Ethics?
A) Maximize profits at all costs
B) Act with integrity, place clients first, promote professionalism
C) Prioritize employer over clients
D) Serve only institutional investors
✅ Answer: B
Explanation: The Code emphasizes integrity, professionalism, and client-first principles.
You’ve completed 50 Ethics MCQs with detailed answers and explanations. Ethics is a cornerstone of the CFA exam, and mastering these concepts builds confidence and boosts exam performance. Next, we’ll move to CFA Level I Quantitative Methods for more practice.