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CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets

According to the guidance on Standard II(B), market manipulation most likely harms capital markets because it:

Manipulation lowers investor confidence and disrupts the smooth functioning of markets, which may lead to higher risk premiums and reduced investor participation. It damages all investors, and since cross-border investing exposes everyone to it, it is not confined to emerging markets.

  1. Aguarantees higher returns for all investors
  2. Blowers investor confidence and may raise risk premiums and reduce participationCorrect
  3. Caffects emerging markets only, leaving mature markets untouched

Explanation

The guidance states manipulation damages all investors, disrupts smooth market functioning, and can reduce trust, leading to higher risk premiums and reduced participation. It also notes cross-border investing exposes all global investors to such practices, so mature markets are not immune.

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