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

If investors come to believe that capital markets are unfair and that only insiders can succeed, the outcome most likely to follow is that investors will:

Investors who believe markets are unfair and favor insiders will be unlikely to invest or will require a higher risk premium. Less capital then reduces innovation and job creation, harming the economy and society, so trust is essential to well-functioning markets.

  1. Arequire a higher risk premium or decline to investCorrect
  2. Baccept lower expected returns for the same risk
  3. Cshift capital toward innovation and job creation

Explanation

A well-functioning market depends on trust. If investors see the market as unfair, they are unlikely to invest or will demand a higher risk premium. That reduces investment capital, innovation and job creation, the opposite of the other options.

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