Schweser Exam 2PM - 3 Quick Clarifications

ETHICS: 65. Suitability and Reasonable Basis are violated because he did not look into stock or check if it was a viable option for client, but why is Fair Dealing not violated? Isn’t it a violation to go call only one client before informing others about it? EQUITY: 80. Answer explanation says, “From the supplier’s perspective, the higher the switching costs, the greater the bargaining power of suppliers.” How do high switching costs increase the bargaining power of suppliers? If you only have a world with one supplier and one buyer who directly interact, then yes, high switching costs hurt buyers and help suppliers. Then I agree. But if you have Firm A who has buyers they sell to and suppliers they get raw materials from, I would think that high switching costs hurt buyers but are irrelevant to suppliers. Is the Q assuming the first scenario I described? FINANCIAL REPORTING and ANALYSIS: 102. Question asks which choice is False. The firm uses GAAP so it will deal with hyperinflation via the temporal method. B is a true statement because it applies to temporal. But both A and C reference adjustments for inflation, which are both activities you do under IFRS/current method. So I think both A and C should be false statements, but they say only A is incorrect. How is C true?

80: Supplier is relatively comfortable that his supplied part will not easily be replaced. It is not a trivial decision that can be made. If there is an entire manufacturing facility that has been built around the part - the switching cost (to move to a new supplier for that part) would cause a definite rethink. 102: A is simply incorrect. The Monetary assets and Liabs would be adjusted for inflation. B and C are correct. B - Temporal would be used in US GAAP -> so USD would become the functional currency. C - Adjustments for Inflation + adjustment for Purchasing Power Gain/Loss in Income statement is right in IFRS.

65: any insight? 80: I think it may work well with an example, so let me know if this is what you’re tryign to say: If buyers have high switching costs, they will continue to be “stuck” buying Product X from Firm A, which means Firm A will continue to make sales of Product X, and since the supplier gives the raw materials for Product X to Firm A, the “high switching cost advantages” that Firm A sees “trickle up” to the Supplier. Thus, the Supplier (who supplies Firm A) benefits when the Buyer (who buys from Firm A) has high switching costs. 102: Got it thanks