Ethics and Financial Decisions: Basics of Financial Governance, Compliance and Investor Protection Questions

Question 1

Define ethics in finance.

Accepted Answer

**Ethics in finance** means applying moral principles like **honesty**, fairness and responsibility while making financial decisions (concept).

Question 2

What is corporate governance? (concept)

Accepted Answer

**Corporate governance** is the system by which a company is directed and controlled through **oversight**, accountability and controls (concept).

Question 3

State one principle of good governance.

Accepted Answer

**Transparency** (or accountability/fairness/responsibility) (concept).

Question 4

What is compliance? (concept)

Accepted Answer

**Compliance** means following applicable laws, regulations and internal policies while conducting business (concept).

Question 5

Insider trading means trading based on unpublished price-sensitive information. (True/False)

Accepted Answer

True. **Insider trading** uses unpublished price-sensitive information (concept).

Question 6

State one mechanism of investor protection.

Accepted Answer

**Mandatory disclosure** and periodic reporting (or audit, grievance redressal, etc.) (concept).

Question 7

List any three unethical practices in finance (points).

Accepted Answer

Any three unethical practices (concept):

- **insider trading**
- window dressing / misrepresentation of accounts
- misleading disclosures / false projections (concept)
- conflict of interest and biased advice
- bribery and improper payments (concept)

Any three points are sufficient.

Question 8

Explain the principles of good governance using a small table (any three).

Accepted Answer

Principles of good governance (concept):

| Principle | Meaning |
|---|---|
| **Transparency** | timely and clear disclosure |
| **Accountability** | management/board answerable for decisions |
| **Fairness** | equitable treatment of shareholders |
| Responsibility (concept) | compliance and ethical conduct |

Any three with brief meaning are acceptable.

Question 9

Differentiate governance and compliance using a table (brief).

Accepted Answer

Governance vs compliance (concept):

| Point | **Governance** | **Compliance** |
|---|---|---|
| Focus | how the company is directed/controlled | adherence to laws/rules/policies |
| Nature | broader (culture + oversight) (concept) | specific requirements and checks |
| Goal | accountability + stakeholder trust (concept) | avoid violations and ensure lawful conduct |

Both work together to protect stakeholders and investors (concept).

Question 10

Write any three reasons why ethics matters in financial decisions.

Accepted Answer

Ethics matters because it:

- builds **trust** and reputation (concept)
- reduces legal/regulatory risk through **compliance**
- protects investors from misinformation and unfair practices (concept)
- supports sustainable long-term value

Any three points are sufficient.

Question 11

Explain investor protection: meaning and mechanisms (exam-style) using a table and conclusion.

Accepted Answer

### Meaning
**Investor protection** means safeguarding investors from fraud, misinformation and unfair market practices (concept).

### Mechanisms (table)
| Mechanism | How it protects investors (concept) |
|---|---|
| **Mandatory disclosure** | reduces information asymmetry |
| **Independent audit** | improves reliability of statements |
| Rules against insider trading | prevents unfair advantage (concept) |
| Grievance redressal | provides complaint/settlement process |

### Conclusion
Strong investor protection increases confidence in markets and supports fair capital formation (concept).

Question 12

Explain the role of audit and internal control in ethical financial reporting (exam-style) using a table and conclusion.

Accepted Answer

### Role in ethical reporting (concept)
Audit and internal controls improve accuracy, prevent fraud and increase credibility.

| Element | Role (concept) |
|---|---|
| **Internal control** | prevents errors/fraud; ensures proper authorization and records |
| **Audit** | independent verification; improves reliability of financial statements |
| **Disclosure** | transparent reporting; reduces information asymmetry (concept) |

### Conclusion
Together, controls + audit + disclosure support ethical reporting and protect stakeholder interests (concept).

Question 13

Write an ethical decision-making framework for a finance manager (exam-style) using a flowchart and conclusion.

Accepted Answer

### Ethical decision-making flow (concept)
Identify decision → Identify stakeholders → Check laws/standards (**compliance**) → Identify conflicts of interest → Evaluate alternatives (fairness/transparency) → Decide & document → Disclose appropriately → Review outcomes (concept)

### Conclusion
A structured framework ensures **integrity**, reduces bias/conflicts and supports compliant, transparent financial decisions (concept).

Question 14

Explain conflict of interest in finance with one example and two controls to prevent it (use a small table).

Accepted Answer

Conflict of interest (concept): personal interest may influence professional decisions.

| Item | Example |
|---|---|
| **Conflict** | adviser recommends a product for commission (not suitability) |
| Control 1 | **disclosure** of conflicts (concept) |
| Control 2 | independent review / segregation of duties (concept) |

Thus, controls reduce biased decision-making and protect investors (concept).

Question 15

List any three compliance areas relevant to finance and explain briefly using a small table.

Accepted Answer

Finance-related compliance areas (concept):

| Area | What it ensures (concept) |
|---|---|
| **Financial reporting** | correct statements and disclosures |
| **Tax/statutory payments** | timely and accurate tax compliance |
| Borrowing covenants | adherence to loan terms and ratios (concept) |
| Anti-fraud policies | prevention/detection of fraud (concept) |

Any three areas with brief explanation are sufficient.

Ethics and Financial Decisions: Basics of Financial Governance, Compliance and Investor Protection

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