UNCG Fin 315 Ethics - Exam John Boatright study set Questions & Answers Already Graded A+

___________ is the level of risk for any given firm. - Unique risk. Are SRIs effective? - Firms can offer SRIs with full disclosure. There is much debate over the effectiveness of SRIs. Cooling-off period laws do what? - Allow buyers a period to cancel large purchases or loans. Fairness and unfairness in financial markets can be classified as? - Substantive or procedural. Financial service firms act as ______________ for client's transactions, becoming agents or fiduciaries - Intermediaries. How can conflicts of interest be reduced? - 1) Avoidance (not acquiring conflicting interests...ex: not offering higher commissions for in-house funds, not allowing managers to trade for themselves) 2) Disclosure 3) Recusal 4) Emphasizing sense of professionalism and importance of morals How can opportunism be reduced? - 1) Incentives (ex: higher base salary) 2) Emphasizing sense of professionalism and importance of morals How do corporate takeovers impact bondholders? - Debt incurred in a takeover, especially leveraged buyouts, lowers bond ratings.Procedural fairness deals with what? - A trade is fair in procedure when there is adequate disclosure of all relevant information needed to make a purchasing decision. Regulations are procedural because they require disclosure. Shareholders typically prefer that corporations assume what level of risk? - High risk. Substantive fairness deals with what? - A trade is fair in substance when the price reflects the actual value of the shares. Substantive fairness is a higher standard than procedural fairness. Blue sky laws are substantive because they aim to get expert valuation. T/F: For properly diversified shareholders, unique risk, is irrelevant only market risk is important. - True. T/F: Implied contracts can be violated without legal consequences. - True. The corporate objective is to: - Maximize shareholder wealth. This has been questioned by critics, who hold that an exclusive pursuit of shareholder interests unjustly neglects the interests of other corporate constituencies. What are conflicts of interest? - When judgement is biased or compromised if the decision-maker stands to gain personally from a decision. What are financial ethics? - Moral norms that apply to financial activity. They reflect fundamental ethical principles.What are pre-dispute arbitration agreements? - In the financial services industry, it is common for firms to require customers and employees to sign these agreements. They agree to mandatory arbitration rather than litigation. However, this method can deny adequate protection. What are the elements of fraud? - 1) False statement or concealment 2) Materiality of the statement/concealment 3) Knowledge of the falsity (proving bad intent) 4) Reliance on the falsity by victim 5) Harm to victim as a result of the falsity