Question

Which of the following would be an indicator, according to Boatright, that a market for a particular good or service is unfair?

Group of answer choices

a.Unequal bargaining power between the buyer and seller in the market.

b.An equal exchange of information between buyer and seller in the market.

c.Exchanges in the market follow well-justified rules.

d.The market has firms whose managers violate their fiduciary duty to shareholders

Some argue that laws against insider trading are good because it is unfair that some individuals have access to information about a company when many others do not have access to that same information. What is one response to this fairness-based argument considered by Boatright in your assigned reading?

Group of answer choices

a.Such laws allow shareholders to have unequal bargaining power over the investing public.

b.Such laws violate the property rights of shareholders.

c.Such laws result in ineffient financial markets.

d.Such laws are unconstitutional under the U.S. Commerce Clause.

One of the most basic ethical objections to high frequency trading (HFT) is that HFT uses information technology that allows stock traders to _______________ the stock market.

Group of answer choices

a.Manipulate

b.Defraud

c.Hedge

d.Arbitrage

Answer 1

(a) Option A: Unequal Bargaining power of Buyer and seller

An ideal market place is where the buyers and the sellers have equal bargaining power over the homogeneous product. When this right of buyer and seller becomes unequal, the market place is not considered good for that product. Unequal bargaining power is where the majority of power is with the buyers or the sellers. If the mojority of rights are with the seller, the price of the product will increase and hence the buyer will shift to the substitutes of that product available in the market. If the mojority power is with the buyer, they will want the product for price so low that the actual cost of the product is more than the profit earned.

(b) Option A: Such laws allow shareholders to have unequal bargaining power over the investing public

The insiders law are the ones where the details of the business are only with selected group of people. These people are the Management, directors, shareholders and those who they think of telling the details. On the basis of these details, the shareholders can have majority of bargaining rights of he wants to sell the shares.

(c) Option A: Manipulate

HFT or high frequency trading uses computers and very complex software to determine the stock prices and also helps in knowing whether to invest or not. Using HFT, a trader can manipulate market according to him. Using HFT a trader can make illusions of high demand or high selling of the stock and the traders who thinks that to be true, starts trading. As soon as the target of the HFT using trader is met, he/she exits the position, thus creating hype in the market. Other traders didn't get the benefit of it, but the trader using HFT got to earn huge profit on the same security.