CFA Level I · CFA Level I Exam · Ethics and Trust in the Investment Profession
If investors believe that capital market participants cannot be trusted or that markets are unfair so that only insiders succeed, they will most likely:
Investors who lose trust in participants or believe markets favor insiders will be unlikely to invest, or at the very least will demand a higher risk premium. Less capital can then reduce innovation and job creation and harm the economy and society.
- Aaccept lower returns for holding risky assets
- Binvest more because of reduced competition
- Cbe unlikely to invest or require a higher risk premiumCorrect
Explanation
The text says that when trust is lacking, investors will be unlikely to invest or, at the very least, will require a higher risk premium. This reduces investment capital, which can hurt innovation, job creation and society. Accepting lower returns is the opposite response.
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