CFA Level I · CFA Level I Exam · Guidance for Standard II: Integrity of Capital Markets
Which statement best describes why trading on material nonpublic information harms the investment profession, even when it produces short-term profits?
It makes markets seem rigged in favor of knowledgeable insiders, so investors avoid them. That reduces confidence in market integrity and makes capital allocation less efficient, harming individuals and the profession in the long run despite any short-term profits.
- AIt lowers investors' tax liabilities
- BIt increases trading volumes, which makes markets more efficient
- CIt makes markets seem rigged for insiders, leading investors to avoid themCorrect
Explanation
Insider trading may bring short-term profits, but it supports the view that insiders take unfair advantage. Investors then avoid capital markets, which makes markets and capital allocation less efficient.
Did you get it right without looking?
One question tells you little. A timed set on Guidance for Standard II: Integrity of Capital Markets shows your real accuracy, how long you take and where you lose marks.
More Guidance for Standard II: Integrity of Capital Markets questions
- If investors come to believe that capital markets are unfair and that only insiders can succeed, the outcome most likely to follow is that i…
- A portfolio manager hears from a friend at a supplier that a listed customer will announce a large, unexpected contract loss tomorrow. The f…
- A firm's compliance policy states that its investment banking and research departments must be separated so that material nonpublic informat…
- According to the CFA Institute's view of ethics, society and the capital markets, the phrase "for the ultimate benefit of society" in the CF…
- Which outcome is most likely to result from widespread unethical conduct by market participants, according to the CFA Institute?
- Mei, a buy-side analyst, visits a retailer's stores, talks to its suppliers and reads public filings. A supplier's employee then privately t…