Ethics Quiz

Question 1

The _____ finance area is whereby governments raise revenue by means of taxation, fees, and borrowing and spend it to provide services for their citizens:

A.) Corporate
B.) Personal
C.) Intermediary
D.) Public

Answer 1

D.) Public

Question 2

That finance be conducted according to moral norms is important because _____

A.) Of the opportunities for large financial gain that may tempt people to act unethically
B.) Moral norms reflect the conduct in financial activity that follows from fundamental ethical principles
C.) Of the crucial role that financial activity plays in the personal, economic, political, and social realms
D.) A. & B.

Answer 2

D.) A. & B.

Question 3

Most financial activity takes the form of ___

A.) Financial contracting
B.) Financial intermediaries
C.) Setting financial standards
D.) Financial planning

Answer 3

A.) Financial contracting

Question 4

Boatright defines the broad areas for studying ethical issues as all of the following except:

A.) Financial management
B.) Financial markets
C.) Financial planning
D.) Financial services

Answer 4

C.) Financial planning

Question 5

The main ethical concern in financial markets, such as stock markets, is that they be:

A.) Informally efficient
B.) Fair
C.) Wealth enhancing
D.) Allocational efficient

Answer 5

B.) Fair

Question 6

Ethical issues in the financial services industry and in the financial management of corporations involve _____, who have an obligation to act in the interests of other parties, called _____:

A.) Workers; owners
B.) Sellers, consumers
C.) Banks officers; savers
D.) Agents; principals

Answer 6

D.) Agents; principals

Question 7

When agents and fiduciaries have a personal interest that interferes with their ability to serve others, they are said to have a(n) _____.

A.) Ethical quandary
B.) Lack of disclosure
C.) Conflict of interest
D.) Moral dilemma

Answer 7

C.) Conflict of interest

Question 8

Unfairness in financial markets is commonly ascribed to all of the following except _____.

A.) Difficulties in the contracting process
B.) Technology transformation practices
C.) An unlevel playing field
D.) Unfair trading practices

Answer 8

B.) Technology transformation practices

Question 9

Fairness or unfairness in financial markets may be further classified as _____.

A.) Systemic; unique
B.) Substantiative; procedural
C.) Structural; temporal
D.) Important; insignificant

Answer 9

B.) Substantiative; procedural

Question 10

Which of the following is not an element of fraud, that is, necessary for fraud to occur?

A.) Reliance by the victim of the fraud on the information provided
B.) A false statement about, or the concealment of, some fact
C.) Knowledge of the falsity of the statement, which indicates an intent to deceive
D.) No harm to the victim

Answer 10

D.) No harm to the victim

Question 11

Whereas _____ creates a false belief by means of a statement or an omission, _____ deceives others by creating a false impression.

A.) Fraud; manipulation
B.) Lying; exaggerating
C.) Manipulation; fraud
D.) Plagiarism; cheating

Answer 11

A.) Fraud; manipulation

Question 12

_____ results when two parties either do not possess the same information or do not have the same access to information.

A.) Information asymmetry
B.) Unfair outcomes
C.) Equitable information distribution
D.) Illicit activity

Answer 12

A.) Information asymmetry

Question 13

A prospectus is required for the issuance of securities because _____.

A.) Sellers have an obligation to tell everything they know about a security
B.) Buyers have a right to buy a safe investment
C.) Regulators want markets to be efficient
D.) Buyers have a right to make an informed decision

Answer 13

D.) Buyers have a right to make an informed decision

Question 14

Most contracts are imperfect or incomplete because _____.

A.) It’s impossible to do so given the uncertainty about the situations that might arise
B.) It’s not worthwhile to specify every detail
C.) Gaps in imperfect contracts are commonly filled by relying on good faith efforts or fiduciary duties
D.) A. & B.

Answer 14

D.) A. & B.

Question 15

Which of the following is not true about banks, brokerage firms, mutual and pension funds, and financial planners?

A.) These firms rarely are agents or fiduciaries for their clients
B.) These are all financial services firms
C.) These firms are engaged in selling various services and products to their customers or clients and thus encounter ethical issues in their sales practices and other operations.
D.) These firms act primarily as financial intermediaries

Answer 15

A.) These firms rarely are agents or fiduciaries for their clients

Question 16

Although _____ relationships are like _____ relationships, the former is also characterized by a stronger duty to act in the interests of others as well as more latitude or discretion in serving the beneficiaries’ interests

A.) Stockbroker; financial planner
B.) Agency; fiduciary
C.) Principal; agent
D.) Fiduciary; agency

Answer 16

D.) Fiduciary; agency

Question 17

Which of the following is an example of a fiduciary?

A.) Executors
B.) All of these
C.) Guardians
D.) Trustees

Answer 17

B.) All of these

Question 18

Agency and fiduciary relationships are subject to a problem with:

A.) Opportunism (or shirking)
B.) Conflict of interest
C.) A. & B.
D.) None of these

Answer 18

C.) A. & B.

Question 19

Conflict of interest can be managed by _____

A.) Requiring a person with a conflict of interest to recuse and not take part in a decision
B.) Requiring disclosure of a potential conflict of interest
C.) Avoiding engaging in an activity
D.) All of these

Answer 19

D.) All of these

Question 20

The generally accepted standard for disclosure is _____, which refers to information that a reasonable or prudent investor would consider important in decision making. Financial services professionals also have an obligation to recommend securities and products that are _____ for the client.

A.) Comprehensiveness; understandable
B.) Significance; appropriate
C.) Materiality; suitable
D.) Applicability; risk tolerant

Answer 20

C.) Materiality; suitable

Question 21

_____ funds use negative screens to avoid the stocks of companies with certain products, most commonly, tobacco, alcohol, gambling, nuclear energy, and military weapons, or that have an objectionable record of social performance.

A.) GDI
B.) JUS
C.) ERI
D.) SRI

Answer 21

D) SRI

Question 22

Which of the following is not considered to be one of the two broad categories of ethical issues in financial management?

A.) All of these are not considered to be one of the two broad categories of ethical issues in financial management.
B.) The ethical obligations or duties of a financial manager of a corporation.
C.) The ethics of organizing a corporation with shareholder control and the objective of shareholder wealth maximization.
D.) The ethics of high CEO compensation.

Answer 22

D.) The ethics of high CEO compensation.

Question 23

Financial managers are agents and fiduciaries who have a duty to manage the assets of a corporation prudently, avoiding the use of these assets for personal benefit and acting in all matters in the interest of the corporation and its shareholders… Specifically, this duty prohibits _____.

A.) Conflict of interest
B.) Fraud and manipulation in connection with a company’s financial reporting and securities transactions
C.) Unauthorized self-dealing
D.) All of these

Answer 23

D.) All of these

Question 24

The use of financial engineering using off-balance-sheet partnerships and complex derivative transactions _____.

A.) Is a common practice to manipulate earnings
B.) Is a common practice to avoid government regulations
C.) Often facilitates transparency so that investors are fully aware of a firm’s true financial condition
D.) A. and B.

Answer 24

D.) A. and B.

Question 25

_____ requires publicly held companies to adopt a code of ethics for senior financial officers that includes, among other elements, standards for honest and ethical conduct, including the ethical handling of conflicts of interest; full, fair, accurate, timely, and understandable disclosure; and compliance with applicable governmental rules and regulations.

A.) Regulation Q
B.) The Golden Rule
C.) Section 406 of the Sarbanes-Oxley Act
D.) General Principles of Ethical Conduct

Answer 25

C.) Section 406 of the Sarbanes-Oxley Act

Question 26

A business firm must determine an appropriate level of risk, and generally, greater rewards require greater risk. Usually, shareholders, prefer that corporations in their portfolio assume _____ than is favored by managers and employees, whose wealth is heavily dependent on one firm.

A.) A higher level of risk
B.) Less regulation
C.) Lower profitability
D.) A lower level of risk

Answer 26

A.) A higher level of risk

Question 27

Which of the following is not true of firm bankruptcy?

A.) Struggling corporations are never able to enter bankruptcy to gain additional leverage with employees, creditors, and other groups as part of a reorganization.
B.) Critics have charged that some strategic bankruptcies are an abuse of the Bankruptcy Code.
C.) It has been used by companies to avoid or reduce the payment of heavy legal judgments.
D.) It has been used to void or renegotiate collective-bargaining agreements and other onerous contracts.

Answer 27

A.) Struggling corporations are never able to enter bankruptcy to gain additional leverage with employees, creditors, and other groups as part of a reorganization.

Question 28

Which of the following is not true to the objective of maximizing shareholder wealth?

A.) The economic view of the firm underlies the objective of maximizing shareholder wealth.
B.) The pursuit of shareholder wealth maximization may lead to social costs, and to an unequal distribution of wealth.
C.) Those who accept the communitarian view of the firm usually support the adoption of the objective of maximizing shareholder wealth.
D.) Some critics hold that an exclusive pursuit of shareholder interests unjustly neglects the interests of other corporate constituencies.

Answer 28

C.) Those who accept the communitarian view of the firm usually support the adoption of the objective of maximizing shareholder wealth.