CFAI Practice: M04 — Introduction to GIPS

Total: 10 questions

Source: CFA Institute Practice Questions — Global Investment Performance Standards


Question 1

A GIPS composite is best described as an aggregation of:

  • A. all portfolios managed by the firm
  • B. discretionary portfolios managed according to a similar investment strategy
  • C. the firm’s best-performing accounts selected for presentation to prospective clients

Question 2

GIPS compliance must be applied on:

  • A. an individual composite basis
  • B. a division or product-level basis
  • C. a firm-wide basis

Question 3

Which of the following statements about GIPS verification is most accurate?

  • A. Verification is required for all firms claiming GIPS compliance
  • B. Verification is performed on individual composites
  • C. Verification is voluntary and applies to the entire firm

Question 4

Under GIPS, terminated accounts must be:

  • A. excluded from all composite records
  • B. included in the composite’s historical record up to the last full measurement period
  • C. included only if the account performed above the composite benchmark

Question 5

The primary purpose of requiring firms to include all discretionary, fee-paying portfolios in composites is to prevent:

  • A. excessive fee charging
  • B. cherry-picking of accounts for performance presentation
  • C. duplication of portfolio management strategies

Question 6

GIPS compliance is:

  • A. required by law in most jurisdictions
  • B. voluntary but once claimed, all requirements must be met
  • C. mandatory for CFA charterholders

Question 7

Under GIPS, the default method for calculating investment returns is:

  • A. money-weighted returns (MWR)
  • B. time-weighted returns (TWR)
  • C. simple arithmetic returns

Question 8

A portfolio in which the client imposes restrictions that prevent the firm from fully implementing its investment strategy is classified under GIPS as:

  • A. a discretionary portfolio that must be included in composites
  • B. a non-discretionary portfolio that is excluded from composites
  • C. a discretionary portfolio that may optionally be excluded from composites

Question 9

Before GIPS were established, a common misleading practice was presenting a single best-performing account as representative of a firm’s investment results. This practice is known as:

  • A. survivorship bias
  • B. representative account presentation
  • C. benchmark manipulation

Question 10

When presenting GIPS-compliant performance, a firm must present a minimum of:

  • A. 1 year of compliant performance
  • B. 5 years of compliant performance, building to 10 years
  • C. 10 years of compliant performance