Chapter 10 - Acct, Fin, Investment Ethics Flashcards
What is finance ethics?
Refers to wide range of activities including stock exchanges, investment bank, mutual funds, etc.
What 3 ways can finance ethics be organized?
- Financial markets
- Financial services
- Financial management
What are financial markets?
Includes stock markets, commodities markets, currency markets.
What are financial markets vulnerable to?
- Unfair trading (fraud and manipulation.
- Unfair conditions (unlevel playing field)
- Contractual difficulties (forming, interpreting, enforcing contracts)
What is a fundamental ethical requirement for financial markets?
That they are fair but also efficient. Problem is you ahve to sacrifice efficiency for fairness to an extent.
What does efficient markets promote?
General welfare b/c achieving max output for min goods provides abundance of goods.
What does fair and efficient mean?
No on gets ripped off and markets are quick.
What are two issues affecting financial markets that make them unfair?
Fraud: Willful misrepresentation of fact that causes harm to a person that relies on the fact.
Manipulation: buying and selling securities to of create misleading impression about direction of their price as to induce investors to buy/sell
What does fraud and manipulation in the markets lead to?
Leads to unfair treatment which then leads to investor losses which leads to loss of investor confidence. In return less people will invest.
How is fairness expressed in the markets?
Through a level playing field.
What two things can make the playing field unlevel?
- Inequalities of information
2. Bargaining Power
What is inequalities of info?
Do not posess same info or lack access.
Only unfair when not legitimatley acquired.
What is unequal bargaining power?
Unfair if they violate right or obligation and when used coercively.
What 3 things can lead to unequal bargaining power?
- Resources: more wealth leads to greater opportunities
- Processing ability: people vary in ability to process info and make informed decision
- Vulnerabilities: exploiting people’s weaknesses
What is the problem with contractual agreements?
Are often vague, ambiguous or incomplete and often leads to disagreements about what is ethically or legally required.
