Question 1

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created an Office of Credit Ratings at the SEC with its own staff and the authority to fine credit-rating agencies and to deregister an agency if it produces bad ratings.This is an example of which remedy of conflicts of interest?

Accepted Answer

A) regulate for transparency 
B) supervisory oversight 
C) leave it to the market 
D) socialization of information production

Question 2

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not prohibit companies issuing securities from paying the credit-rating agencies to rate them.This is an example of which remedy of conflicts of interest?

Accepted Answer

A) regulate for transparency 
B) supervisory oversight 
C) leave it to the market 
D) socialization of information production

Question 3

Evidence suggests that credit-rating agencies ________ exploited conflicts of interest because ________.

Accepted Answer

A) have not;it would cause their ratings to lose credibility and thus have a lower value in the marketplace 
B) have not;they would have an increase in profits in the long-run 
C) have;it would cause their ratings to lose credibility and thus have a lower value in the marketplace 
D) have;they would have an increase in profits in the long-run

Question 4

A type of ________ problem that occurs when a person or institution has multiple objectives that conflict with each other is called ________.

Accepted Answer

A) moral hazard;conflicts of interest 
B) adverse selection;conflicts of interest 
C) moral hazard;spinning 
D) adverse selection;spinning

Question 5

Which of the following is a part of the Global Legal Settlement of 2002?

Accepted Answer

A) The establishment of a Public Company Accounting Oversight Board (PCAO
B) to supervise accounting firms and thus insure that audits are independent and controlled for quality. 
B) Increased penalties for white-collar crime and obstruction of official investigations. 
C) Requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate. 
D) Requires investment banks to make public their analysts' recommendations.

Question 6

If the incentive to take advantage of a conflict of interest is high

Accepted Answer

A) removing the economies of scope that created the conflict may induce higher costs because of the decrease in the flow of reliable information. 
B) then the government must step in to remove the conflict. 
C) the costs of non-action in removing the conflict will always be higher than the cost of removing the conflict. 
D) firms will always step in and work to remove the conflict.

Question 7

The incentive for analysts in investment banks to distort research increases when

Accepted Answer

A) revenues from brokerage commissions increase. 
B) the potential revenues from underwriting greatly exceed brokerage commissions. 
C) the potential brokerage commissions greatly exceed revenues from underwriting. 
D) revenues from underwriting decrease.

Question 8

Advice on taxes,accounting or management information systems,and business strategies are commonly referred to as ________ services.

Accepted Answer

A) accounting audit 
B) management advisory 
C) seller 
D) managing underwriter

Question 9

One problem with conflicts of interest is that they can reduce the ________ in financial markets,thereby increasing ________.

Accepted Answer

A) quantity of information;financial institutions' profits 
B) quantity of information;asymmetric information 
C) quality of information;asymmetric information 
D) quality of information;financial institutions' profits

Question 10

Which policy measure requires investment banks to sever the links between research and securities underwriting?

Accepted Answer

A) Sarbanes-Oxley Act of 2002 
B) Global Legal Settlement of 2002 
C) Gramm-Leach-Bliley Act of 1999 
D) Riegle-Neal Act of 1994

Question 11

If there isn't sufficient information available,then which of the following approaches to reduce conflicts of interest will have the lowest probability of working?

Accepted Answer

A) leave it to the market 
B) supervisory oversight 
C) separation of functions 
D) socialization of information production

Question 12

Conflicts of interest arising from management advisory services brought down ________ in 2002.

Accepted Answer

A) Enron 
B) WorldComm 
C) Arthur Andersen 
D) Global Crossing

Question 13

Which of the following policy measures required the SEC to prevent issuers of asset-backed securities from choosing the credit-rating agencies that will give them the highest rating and supported earlier initiatives by the SEC?

Accepted Answer

A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
B) Sarbanes-Oxley Act of 2002 
C) Global Legal Settlement of 2002 
D) Gramm-Leach-Bliley Act of 1999 
E) Riegle-Neal Act of 1994

Question 14

Which policy measure makes it unlawful for a registered public accounting firm to provide any nonaudit service to a client contemporaneously with an impermissible audit?

Accepted Answer

A) Sarbanes-Oxley Act of 2002 
B) Global Legal Settlement of 2002 
C) Gramm-Leach-Bliley Act of 1999 
D) Riegle-Neal Act of 1994

Question 15

Conflicts of interest is a type of ________ problem that occurs when a person or institution has multiple objectives that are in conflict with each other.

Accepted Answer

A) moral hazard 
B) adverse selection 
C) risk sharing 
D) spinning

Question 16

If firms have an incentive to hide information from mandatory disclosure because the information is proprietary,then which of the following remedies is the least intrusive way to overcome this incentive?

Accepted Answer

A) leave it to the market 
B) separation of functions 
C) supervisory oversight 
D) socialization of information production

Question 17

Which of the following policy measures forced credit-rating agencies to provide reports to the SEC when their employees go to work for a company that has been rated by them in the last twelve months?

Accepted Answer

A) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
B) Sarbanes-Oxley Act of 2002 
C) Global Legal Settlement of 2002 
D) Gramm-Leach-Bliley Act of 1999 
E) Riegle-Neal Act of 1994

Question 18

Explain the type of conflicts of interest that can arise from the development of universal banking.

Accepted Answer

The answer of Explain the type of conflicts of interest...

Question 19

Not surprisingly,when financial institutions have consolidated more services under one roof,the amount of conflicts of interest has ________,which has led to ________ in unethical behavior.

Accepted Answer

A) increased;an increase 
B) increased;a decrease 
C) decreased;an increase 
D) decreased;a decrease

Question 20

Under the Global Legal Settlement of 2002,the provision that requires,for a period of five years,brokerage firms to contract with independent research firms to provide information to their customers is an example of

Accepted Answer

A) regulate for transparency. 
B) supervisory oversight. 
C) separation of functions. 
D) socialization of information production.

Exam 30: Web 5:conflicts of Interest in the Financial Services Industry