Question

Describe how the ideal of fairness plays out in the financial markets. Specifically focus on the ability to garner information before making such decisions.

Answer 1

A financial market refers to a market place where creation and trading of financial assets like shares, debentures, bonds, derivatives, currencies etc takes place. Fairness in a financial market refers to the fair practices and policies that must be followed by each factor in a financial market system, especially to fairness in trade methods. With increasing speculations in trade, maintaining fairness plays a major role in keeping the financial market stable. The implementation of this fairness policy is essential in providing equal opportunity of trade in the market. The following types of frauds and speculations takes place in a financial market

· Corporate frauds involving the creation of dummy corporates and misleading the investor in making false investments

· Internet frauds which gives false information of the value of shares via spamming or other internet tools so as to mislead the investment potential of the trader.

· Insider trading where the secret measures of a company are revealed so as to take advantage position in the financial market.

· Microcap fraud wherein micro firms with low market value are deceptively promoted and then sold at high prices to the buyers in the market

· Boiler rooms that always pressurizes a client to trade in pursuit of making microcap frauds.

· Accountant fraud involving publishing of false account statements of a firm which trades in a market so as to mislead the trading practices of a client.

· Mutual fund frauds and ponzi schemes

The following are the reasons why fairness should be measured and maintained in a financial market

· Speculations in a financial market should be identified and regulated so that the financial security of the client in a market is protected.

· A failure to maintain fairness in a financial market helps in the rise of many fraud financial organizations which will destroy the economy of a nation.

· It will lead to terrorist financing and illegal trading

· It will create unethical and unequal trading among various traders which may lead to fall of a fair trader and success of a speculated trader.

· It leads to misleading investments of the client which can lead to loss of opportunity cost.

                                                       With reference to the above points, it can be understood that maintenance of fairness in a market system is quintessential for an economy so as to maintain the economic stability.