Ethic & International finance Module 4-5

Why are free markets generally considered ethical?

• They eliminate all financial risks
  

• They provide an efficient allocation of resources

• They ensure equal wealth distribution

• They prevent all forms of market manipulation

How do hedge funds contribute to market failures?

• By increasing short-term market volatility
  

• By stabilizing financial markets
  

• By ensuring fair pricing of assets

• By investing only in long-term projects

What is an example of a negative externality in financial markets?

• Improved financial literacy among investors

• Increased profitability of financial institutions
  

• Government bailouts leading to excessive risk-taking by banks
  

• The expansion of financial services to underserved communities

What is a key consequence of "too big to fail" institutions?

• Reduced systemic risk
  

• Increased accountability among financial institutions
  

• Moral hazard leading to excessive risk-taking
  

• Greater financial transparency

How can markets help address negative externalities?

• By allowing businesses to self-regulate
  

• By enforcing stricter criminal penalties for unethical behavior
  

• By implementing pricing mechanisms like carbon taxes
  

• By encouraging financial institutions to take higher risks

Why is mis-selling financial products considered unethical?

• It prioritizes volume-based sales incentives over customer needs
  

• It leads to increased financial literacy

• It benefits long-term investors
  

•  It ensures higher profitability for financial firms

What is a key ethical concern related to money laundering?

• It increases financial transparency
  

• It allows illicit funds to enter the financial system

• It provides stability to the banking sector
  

• It ensures fair competition among financial institutions

Which of the following is NOT a key element of the CFA Ethical Decision-Making Framework?

• Understanding ethical principles
  

• Identifying conflicts of interest

• Making investment decisions based solely on profitability

• Evaluating situational influences

Why is it important to recognize conflicts of interest in financial decisions?

• To ensure financial professionals maximize their personal earnings
  

• To avoid ethical dilemmas and maintain integrity
  

• To encourage aggressive market competition
  

• To minimize regulatory oversight

What is a common situational influence that affects ethical decision-making?

• Conforming to group pressure
  

• Conducting thorough research

•  Following ethical guidelines
  

• Promoting investor education