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Return to Business Ethics 5e Student Resources
Chapter 6 Multiple Choice
Questions
Shareholders and business ethics
1. Managers are entrusted to run the
company in the best interest of ________.
Specifically, they have a duty to act for the
benefit of the company, as well as a duty
of ________ and of _______.
Managers should run a company in the best
interests of its shareholders, and therefore
have a duty of care and skill, to run the
company in the most professional and
e!cient possible manner, and a duty of
Diligence, to make every effort to ensure
that the company is successful, as well as a
duty to act for the benefit of the company,
to ensure its prosperity and longevity.
Page reference: p.235-236
Shareholders, Care and Skill, Diligence !
Stakeholder, Care and Skill, Diligence "
Shareholders, Self-interest, Diligence "
Stakeholders, Care and skill, Self-interest "
2. The relationship between shareholders
and the company, or so called ________,
describes shareholders as _________ and
managers of the company as ________.
The agency relation describes the
relationship between company principals,
or shareholders, and agents, or managers,
alluding to the inherent tensions that often
arise between the two parties.
Page reference: p.238
Agency relation, Agent, Principals "
Stakeholder management, Agent, Principals "
Agency relation, Principal, Agents !
Stakeholder management, Principal, Agents "
3. The so-called BRIC countries (Brazil,
Russia, India and _______) tend to follow
a __________ approach to corporate
governance. However, recently this has
tended to move towards more _______-
based mechanisms.
Brazil, Russia, India and China are all
countries whose corporate governance
approach has traditionally been based on a
relationship-based approach guided by
their political and economic heritage. This
has been increasingly supplanted due to a
shift towards more market-based
mechanisms.
Page reference: p.240
Canada, Market, Relationship "
China, Market, Relationship "
Canada, Relationship, Market "
China, Relationship, Market !
4. Which of the following factors are
important when discussing national
corporate governance regimes?
1. Pressures in favour of a convergence in
governance models;
2. Considerable levels of heterogeneity in
governance systems described as being the
same or similar;
3. Corporate governance deviance
occurring due to internal firm pressures;
4. The Anglo-American model being
considered the best model in light of the
recession in the late 2000s.
Statements 1,2,3 are correct as pressures
for convergence in governance models have
led to more hybrid models, levels of
heterogeneity in governance systems are
typically high and corporate governance
deviance has been evidenced due to, for
example, entrepreneurial motivations
emanating from within the firm. Statement
4 is incorrect as the Anglo-American model
has fallen from grace largely as a result of
the economic crash in the late 2000s.
Page reference: p.240
1,2,3 !
1,3,4 "
2,3,4 "
1,2,3,4 "
5. Which of the following statements are
correct?
1. Executive directors provide a link
between managers and shareholders;
2. Non-executive directors are responsible
for running the firm;
3. Executive directors' job is to ensure that
the corporation is being run in the best
interests of the shareholders;
4. Executive directors are responsible for
running the firm.
Statements 1 and 4 are correct as executive
directors run the firm on a day to day basis
and provide a link between managers and
shareholders. Statements 2 and 3 are
incorrect as non-executive directors are
not responsible for running the firm but are
supposed to ensure that the corporation is
being run in the best interests of the
shareholders.
Page reference: p.241-242
1,4 !
1,3 "
2,3 "
1,2,3 "
6. To ensure the independence of the non-
executive board members, they are a
number of steps which can be taken,
which include non-executives being drawn
from _______ the company, being
appointed for a _________ time period as
well as being appointed _________.
Drawing non-executive directors from
outside the firm, appointing them for a
limited time period and appointing them
independently are all steps which help to
ensure their independence.
Page reference: p.241-242
Outside, Limited, Independently !
Inside, Limited, Intermittently "
Outside, Unlimited, Intermittently "
Inside, Unlimited, Independently "
7. In order to try and align the interest of
shareholders and senior management of a
company, _________ are often made
available to _______ of a company, to
ensure that it is in their interests to
increase _______ and dividend
performance.
Share options being available to senior
managers is a means by which shareholders
and senior manager interests can be
aligned as they motivate senior managers
to try and increase share price, as well as
dividend performance.
Page reference: p.243-244
Share options, Senior managers, Share Price !
Share options, All employees, Share Price "
Non-financial remunerations, Senior managers,
Employee Satisfaction "
Non-financial remunerations, All employees,
Employee Satisfaction "
8. Which of the following statements
regarding the ethical issues associated
with insider trading are correct?
1. There is inherent unfairness when one
party trades with superior knowledge;
2. The knowledge used by insider traders
is misappropriated from the firm involved;
3. The actions of insider traders increase
investor confidence in financial markets;
4. Insider trading undermines the fiduciary
relationship.
Statements 1,2 and 4 are correct as insider
trading is considered unfair, as one party is
trading with superior knowledge, the
knowledge used by the insider trader
belongs to the firm and as such they have
no right of access, and insider trading can
undermine the fiduciary relationship as it
damages trust and dependence among
shareholders and managers. Statement 3 is
incorrect as insider trading decreases
investor confidence in financial markets.
Page reference: p.247-250
1,2,3 "
1,2,4 !
2,3,4 "
1,2,3,4 "
9. _______ such as bitcoin are becoming
increasingly mainstream and have a whole
host of associated ethical implications, for
example, they are______ and more
______. However, they have also been
used to engage in _______.
!Cryptocurrencies, Cheap, Secure,
Financial crime
Bitcoin, a type of cryptocurrency, has led
the charge in the use of blockchain
technology being applied to financial
currency. The advantages of such
cryptocurrencies are that they are cheaper
and more secure. However, they have been
used to commit financial crime.
Page reference: p.253-256
Cryptocurrencies, Expensive, Secure, Financial
Crime "
Traditional currency, Cheap, Unsecure,
Charitable giving "
Cryptocurrencies, Cheap, Secure, Financial
crime !
Traditional currency, Expensive, Unsecure,
Charitable giving "
10. Some of key differences between
Islamic finance and conventional finance
include - prohibition of charging and
paying _______, prohibition on ______
and ______ transactions, prohibition of
sinful investment and requirement for all
financial products to be backed by
__________.
Islamic finance differs from that of
conventional finance due to a number of
differences. Under Islamic finance: interest
is not allowed to be charged, uncertain and
speculative transactions are banned, and all
financial products must be backed by
tangible assets.
Page reference: p.261-262
Interest, Certain, Speculative, Intangible assets
"
Interest, Uncertain, Assured, Intangible assets
"
Interest, Uncertain, Speculative, Tangible assets
!
Interest, Certain, Assured, Tangible assets "
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