Financial Risk Manager Part 1
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David Bremen, FRM, has recently joined one of Austria's largest jet engine manufacturers as a Chief Risk Officer. Previously, Bremen had worked for 35 years in risk hedging and risk management in the banking sector. Based on his vast experience, David recommends his team hedge all of its foreign currency-denominated sales. He does not, however, state that this is just his opinion. He believes that most foreign currencies are most volatile at the end of every financial year. David's recommendation:
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A
Has not violated the Code.
B
Has violated the Code because he has not clearly disclosed his expertise and knowledge concerning risk assessment.
C
Has violated the Code because he failed to distinguish between fact and opinion in the presentation of his recommendation.
D
Has violated the Code because he cannot delegate his team to perform hedging transactions.
Explanation:
David Bremen has indeed violated the Code of Conduct because he failed to distinguish between fact and opinion in the presentation of his recommendation. The Code of Conduct, which is a set of ethical and professional guidelines that financial professionals are expected to adhere to, mandates that members should clearly differentiate between facts and their personal opinions when presenting recommendations. In this case, David Bremen made a recommendation to hedge all foreign currency-denominated sales without explicitly stating that this was based on his personal opinion and experience. This could potentially mislead his team into believing that this recommendation is a universally accepted fact in the field of risk management, rather than a strategy that is influenced by David's personal beliefs and experiences. Furthermore, the Code of Conduct also requires members to perform reasonable due diligence before making any recommendations. By basing his recommendation solely on his personal experience, without providing any empirical evidence or conducting a thorough analysis of the current market conditions, David Bremen has failed to meet this requirement. Therefore, his actions are in violation of the Code of Conduct.
Choice A is incorrect. David has indeed violated the Code of Conduct, but not for the reasons stated in this option. His violation lies in his failure to distinguish between fact and opinion, not in his decision to hedge all foreign currency-denominated sales.
Choice B is incorrect. The Code of Conduct does not require David to disclose his expertise and knowledge concerning risk assessment explicitly. His violation pertains to the presentation of his recommendation as a fact rather than an opinion.
Choice D is incorrect. The Code does not prohibit delegation of tasks such as hedging transactions. David's violation stems from his failure to differentiate between facts and opinions when presenting recommendations, not from delegating tasks to his team.
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