D076 Module 3 VERIFIED EXAMS

Ethics - Accepted standards of conduct that guide a person's behavior Morals - Reflect one's beliefs about right and wrong Legal - Following laws/rules set by and authority Which term reflects a person's beliefs about right and wrong, good and bad, or just and unjust? - Moral What characterizes an ethical action? - An ethical action is based on accepted standards of conduct. Lucas is a financial advisor working for Bullzai, Inc. He is faced with a dilemma. Bullzai has started changing its practices in order to increase profit. As a financial advisor, he is now supposed to suggest to clients to invest in portfolios that will not do as well as the portfolios that Bullzai is invested in. This is an accepted practice done by other businesses in the industry, and it complies with all standards set by the government. However, Lucas knows that this practice is not in his clients' best interest. What type of dilemma is Lucas facing? - This is not a legal issue because the new practice complies with the law, and it is not an ethical issue because it is a commonly accepted practice within the industry. It is a moral issue because it deals with Lucas's own sense of right and wrong. Which type of error would result in a set repercussion or penalty given by the government? - Legal Ethics in Finance - Provides stability and integrity within a company and ensures proper functioning of markets Ethical Dilemma - Issue in the process of deciding between multiple options where no option is completely acceptable from an ethical standpoint. Profit vs shareholder wealth - Efficiently provide goods and employ workers. Attempting to do things unethically with end up bankrupt. Low cost vs ethical manufacturing - Lower costs of production by using cheapest production that may be unethical - unfair wages and child labor Customer Demand Vs Good due diligence - Selling things but they don't have it yet isn't good Securitization - The process of combining several types of contractual debt (such as mortgages) and reselling them as a package to investors. Secretly shorting - Selling in advance of acquiring Example of Ethical Dilemma - If advisors put their own interest first, they may not disclose all info that would be good for you to know when making financial decisions Example of Ethical Dilemma part 2 - If paid w cash, might be tempted to pocket some! Nora is an investment manager, which means that she is paid to invest other people's money. To meet her goal for the month, she is seeking to invest money from clients in an investment that is risky but potentially has a higher return. What about this situation represents an ethical dilemma? - Nora is considering investing in a risky asset just to meet her monthly goal. Nora is caught between the obligation to meet her goal and the obligation to keep her clients' money safe. As an investment manager, she is obligated to do what is best for the client. What are the effects of attempting to maximize shareholder value for a business in an unethical way? - It often leads to decreased shareholder value for the business.