certificates of deposit - ethics question

CFA Level I Ethics
#1

here’s one that confused me. From a finquiz exam that totally destroyed my enthusiasm (53%) :frowning:

While advising his client to move at least 10% of his portfolio from corporate bonds to bank-sponsored certificates of deposit, a portfolio manager makes the

following comment:“I guarantee that your principal value will not fall on these investments.”

The portfolio manager has most likely:

A. not violated any Standards.

B. violated the Standards by misleading investors.

C. violated the Standards by misrepresenting information and guaranteeing preservation of investment capital.

Answer: A

Certificates of deposit are insured by the government. Therefore, using the term ‘guaranteed’ in this context is not inappropriate as long as the amount is within government-insured limit.

I have 2 questions here:

1- When you want to use th term guaranteed, even if its with a T bill , shouldnt it be in another format “this is guaranteed by government” , rather than " i guarantee this and that"

2- Arent certificates of deposit issued by individual banks?? How come they are guaranteed bu government , i thought that was just for T bills.

Thanks in advance.

#2

Re your 2nd question: Most of the countries/governments guarantee any deposit by the individuals and corporate clients deposited in the banks operating in the same jurisdiction. Of course there might be cap limitations on this guarantee on each deposit agreement but the fact is that if the bank is unable to return your money, then you can get your money back from the government (or authorized government agency).

Good luck!

#3

Certificates of Deposits issued by individual banks are usually insured via some governmental institutions Eg. DICGC here in India.

P.S. I also got the same question wrong on the Finquiz test. Kept scoring between 60-65 on half mocks. Got frustrated and switched to Schweser. No point in getting bogged down in convoluted questions such as those on FQ.

#4

Haven’t used Finquiz. I am using official curriculum and Schweser for reading and official mocks and questions for testing.

Don’t get frustrated. This is the last week and the more you keep your knowledge refreshed, the better score you will get.