Ethics Quiz Flashcards
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
D.) Public
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.
D.) A. & B.
Most financial activity takes the form of ___
A.) Financial contracting
B.) Financial intermediaries
C.) Setting financial standards
D.) Financial planning
A.) Financial contracting
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
C.) Financial planning
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
B.) Fair
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
D.) Agents; principals
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
C.) Conflict of interest
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
B.) Technology transformation practices
Fairness or unfairness in financial markets may be further classified as _____.
A.) Systemic; unique
B.) Substantiative; procedural
C.) Structural; temporal
D.) Important; insignificant
B.) Substantiative; procedural
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
D.) No harm to the victim
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
A.) Fraud; manipulation
_____ 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
A.) Information asymmetry
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
D.) Buyers have a right to make an informed decision
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.
D.) A. & B.
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
A.) These firms rarely are agents or fiduciaries for their clients
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
D.) Fiduciary; agency
Which of the following is an example of a fiduciary?
A.) Executors
B.) All of these
C.) Guardians
D.) Trustees
B.) All of these
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
C.) A. & B.
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
D.) All of these
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
C.) Materiality; suitable
_____ 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
D) SRI
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.
D.) The ethics of high CEO compensation.
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
D.) All of these
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.
D.) A. and B.
_____ 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
C.) Section 406 of the Sarbanes-Oxley Act
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
A.) A higher level of risk
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.
A.) Struggling corporations are never able to enter bankruptcy to gain additional leverage with employees, creditors, and other groups as part of a reorganization.
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.
C.) Those who accept the communitarian view of the firm usually support the adoption of the objective of maximizing shareholder wealth.
