Which of the following statements is FALSE?

Group of answer choices

Ethics plays a vital role by guiding conduct in areas not governed by laws and regulations.

Moral norms do not reflect the conduct in financial activity that follows from fundamental ethical principles.

Ethics in finance consists of the moral norms that apply to financial activity broadly conceived.

Ethics plays a vital role by guiding the formation of laws and government regulations.

Unfairness in financial markets is commonly ascribed to _____.

Group of answer choices

unfair trading practices.

all of the above.

difficulties in the contracting process.

an unlevel playing field.

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

Group of answer choices

relegated or non-relegated fairness.

substantiated or unsubstantiated fairness.

cursory or determinative fairness.

substantive or procedural fairness.

The following are elements of fraud EXCEPT _____.

Group of answer choices

a false statement about, or the concealment of, some fact.

the significance or materiality of a fact.

no knowledge of the falsity of the statement.

some harm to the victim.

Which of the following statements is FALSE?

Group of answer choices

An example of fraud is if a trader buys a thinly traded stock to drive up the price and then sells at the artificially created high price.

Some large institutional investors have been accused of manipulating markets by creating volatility that they can exploit with sophisticated trading strategies.

Fraud creates a false belief by means of a statement or an omission.

Manipulation deceives others by creating a false impression.

In general, it is unfair to take advantage of different conditions when doing so violates some right or obligation. A response to this problem is _____.

Group of answer choices

all of the above.

laws that impose a cooling-off period during which a buyer can cancel a large purchase or loan may be justified on the ground that it is wrong to take advantage of peoples impulsiveness or inexperience.

a prospectus is required for the issuance of securities because the buyers have a right to make an informed decision.

in cases of insider trading, the insider is usually violating a fiduciary duty to the corporation not to use confidential information for personal gain.

Which of the following statements is (are true) about contracts?

Group of answer choices

Most contracts are imperfect or incomplete either because it is not worthwhile to specify every detail or because it is impossible to do so given the uncertainty about the situations that might arise.

Imperfect contracts are commonly filled by relying on good faith efforts or fiduciary duties.

Contracts often fail to specify what constitutes a breach or how a breach should be remedied.

All of the above.

Although fiduciary relationships are similar to agency relationships, they are also characterized by _____.

Group of answer choices

a stronger duty to act in the interests of others.

less compensation.

(a) and (b).

more latitude or discretion in serving the beneficiaries interests.

Well-known problems of agency and fiduciary relationships are _____.

Group of answer choices

conflict of interest and carelessness.

opportunism and carelessness.

conflict of interest and poor judgment.

opportunism and conflict of interest.

A conflict of interest is created, for example, when _____.

Group of answer choices

all of the above.

mutual fund managers also trade for their own account .

brokers are offered a higher commission for selling a firms own in-house mutual funds than for selling the funds of other firms.

analysts for an investment bank are also involved in the banks deals .

A conflict of interest can be managed by _____.

Group of answer choices

requiring disclosure of conflicts of interest.

avoidance by not acquiring any conflicting interests.

increasing compensation of agents and fiduciaries.

recusal of the person(s) with a conflict of interest.

The generally accepted standard for disclosure by financial services firms is _____ and the _____ requirement is violated by abusive practices such as twisting and churning.

Group of answer choices

reasonable; clear.

fair; unbiased.

materiality; suitability.

full; comprehensive.

Bank lending practices have many impacts that raise ethical concerns. If banks refuse to issue mortgage loans for homes in distressed areas of a city, a practice known as _____, then they contribute to further urban decay.

Group of answer choices

redlining.

sectioning.

community disenfranchisement.

monetary blockading.

Which of the following statements is FALSE?

Group of answer choices

SRI unquestionably has a great impact on corporate behavior.

Some SRI investors hope, through their investments, to influence the behavior of corporations others seek merely to avoid being complicit in or benefiting from certain kinds of activities.

Socially responsible investment (SRI) funds use negative screens to avoid the stocks of companies with certain products.

It is morally permissible for investors to seek out SRI funds and for firms to offer such funds as long as there is full disclosure.

The broad category (categories) of ethical issues in financial management are ____.

Group of answer choices

the ethics of organizing a corporation with shareholder control.

the objective of shareholder wealth maximization.

the ethical obligations or duties of a financial manager of a corporation.

all of the above.

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Enron is a firm that engaged in unethical behavior. Which of the following is TRUE of Enron?

Group of answer choices

The CFO hid debts in created partnerships.

Enron prepared false reports that misrepresented Enrons financial condition.

All of the above.

The CFO personally benefitted from partnerships that he created to do business with Enron.

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To meet these possible failings in financial management, Section 406 of the Sarbanes-Oxley Act, passed in 2002 in response to the scandals at Enron and other companies. It requires _____.

Group of answer choices

that publicly held companies to adopt a code of ethics for senior financial officers.

full, fair, accurate, timely, and understandable disclosure.

all of the above.

compliance with applicable governmental rules and regulations.

There are other areas where ethical judgment is necessary. With regard to risk, financial managers _____.

Group of answer choices

serving only shareholder interests might be led to pursue a very high-risk strategy.

serving only management interests might be led to pursue a very high-risk strategy.

serving only bondholder interests might be led to pursue a very high-risk strategy.

serving only shareholder interests might be led to pursue a very low-risk strategy.

Which of the following statements is FALSE?

Group of answer choices

If a firm is truly insolvent, then bankruptcy may be forced on it, but the bankruptcy laws make it impossible for it to be used as a means for achieving strategic ends.

The bankruptcy code in the United States has been used by companies to avoid or reduce the payment of heavy legal judgments.

The bankruptcy code in the United States has been used by companies to void or renegotiate collective-bargaining agreements and other onerous contract.

Although such strategic bankruptcy may save companies, critics have charged that such strategic bankruptcies are an abuse of the Bankruptcy Code.

Which of the following statements is FALSE?

Group of answer choices

Bondholders rarely suffer when the debt incurred in the takeover, especially a highly leveraged buyout, lowers bond ratings.

Broadly speaking, the rules for this market should be fair to all parties and provide a level playing field, but some critics of hostile takeovers question whether important decisions such as corporate control should be made in the marketplace.

Incumbent management has many defenses, including poison pills, golden parachutes, and greenmail, which may be criticized on ethical grounds.

Corporate takeovers often affect many groups, including employees who lose jobs and local communities whose economic base is eroded.

Which of the following statements is FALSE?

Group of answer choices

The pursuit of shareholder wealth maximization may lead to social costs, such as pollution and urban blight, and also to an unequal distribution of wealth.

Shareholder control also benefits other constituencies automatically, because only residual risk bearers have an incentive to operate the firm for maximum profitability and also because their assumption of residual risk ensures the return of all other stakeholder groups

Stakeholder theory maintains that a corporation ought to serve the interests of all those with a stake in the firm, it accepts the economic view that underlies it.

The shareholder wealth maximization objective is that shareholders, who provide equity capital to a firm in return for the residual income or profits, ought to have control because this is the best means for securing their return.