Multiple Choice Quiz

1

Which of the following aspects of the relationship between Enron’s special purpose entities (SPE’s) and Enron itself is not particularly egregious?
A) Enron had no reason for forming SRE’s other than to create a deceptive impression that it was in better financial shape that it actually was.
B) Hedging risks by entering into agreements with oneself does not lower risks.
C) Underwriting one’s own risks is not underwriting them at all.
D) Using Enron’s own stock to finance the SPE’s provided a very strong incentive for Enron management to keep its stock value high.
E) All of the above.
F) None of the above.

2

Which statement is not true of the agency concept?
A) In actual fact, not all agents are employees.
B) Under the common law tradition of the United States, all employees are treated as agents of employers.
C) The primary responsibilities in the employer-agent relationship lie with the employer.
D) The law has described the employee-employer connection as a master-servant relationship.

3

Select the statement that does not support the narrow view of non-managerial employees’ responsibilities to their employer, the idea that the employer exercises a great deal of control over the nature and terms of employment with very little discretion given to the employee:
A) Employees consent to obeying managers when they take a job.
B) Employees who agree to obey employers are not truly abandoning their own responsibility.
C) The choice of obeying someone’s command or jeopardizing one’s job is a fundamentally coercive situation and, therefore, the consent involved is not fully free.
D) Owners have property rights and have to be protected against the harms they might suffer from employees.

4

Identify the statement that does not correctly present the fiduciary relationship that is said to exist between managerial employees and employers:
A) Managers have special expertise that owners must rely on, so they are given wider responsibilities .
B) Managers are free from close day-to-day oversight by owners.
C) Because managers have greater freedom from day-to-day supervision by owners, they are not generally understood to have a strong fiduciary duty to always act in the best financial interest of the owners.
D) The legal duties of loyalty, trust, obedience and confidentiality are understood to override the manager’s personal interests.

5

Identify the statements that reflect the varied owner interests corporate managers are supposed to serve:
A) Investors buy stock because they believe in the company and its products.
B) Investors are playing the stock for short-term gain.
C) Investors see their stock ownership as an investment in a company and its technology.
D) Investors see their stock ownership as a long-term investment for personal retirement and security.
E) All of the above.
F) None of the above.

6

Which statement describes a managerial action that does not unethically impose costs upon stockholders and other stakeholders?
A) The action imposes unwanted costs on stockholders and stakeholder by giving up some alternatives in favor of others in the interest of maintaining the fiscal stability of the enterprise.
B) A personal interest of a manager hinders the exercise of his or her professional judgment.
C) A portion of some payment is kicked back to the payer as an incentive to make the payment in the first place.
D) Financial advisers receive payments from a brokerage house to pay for research and legal services that should be used to benefit the advisers’ clients, not the advisers’ personal interests.

7

Select the statement that, ethically speaking, best represents a valid concept of what loyalty to a firm means:
A) Loyalty means a willingness to sacrifice one’s own interest by going above and beyond ordinary employee responsibilities.
B) Loyal employees are expected to sacrifice for the firm even though the firm is not necessarily bound to sacrifice for the employee.
C) Since the model of agency law lays a legal duty of loyalty on employees, employees clearly have a corresponding ethical responsibility to be loyal.
D) While a willingness to sacrifice might be a part of loyalty, it would seem that devotion and faithfulness to a common good is both more essential to loyalty and what explains the willingness to sacrifice.

8

Identify the statement that challenges Albert Carr’s analogy that, like poker, business is a game that has its own rules and, therefore, is exempt from ordinary requirements of morality:
A) Carr overestimates the prevalence and acceptability of dishonesty within business.
B) Even if business did have its own set of ethical conventions, that fact alone does not exempt it from ordinary ethical evaluations.
C) There are major disanalogies between business and games like poker that weaken the conclusions drawn from Carr’s analogy.
D) Unlike poker games, individual often have no choice but to participate in business practices.
E) All of the above.
F) None of the above.

9

According to Richard DeGeorge, which statement presents a condition that makes blowing the whistle on a company not just permissible but obligatory?
A) A threat of serious harm exists.
B) The whistleblower has exhausted all internal channels for resolving the problem.
C) The harm to be prevented overrides the harm done to the firm and to other employees.
D) The whistleblower has good reason to believe that blowing the whistle will prevent the harm.

10

Select the statement that is not a criticism of insider trading:
A) The insider benefits inappropriately by buying or selling the stock at a price below or above what the market will demand when the inside information is made public.
B) An insider can benefit by trading on bad news as well as good, and this might be an incentive to work against the firm’s best interests.
C) The insider’s action sends the correct message to the market, reflecting the stock’s true value, moving the market toward equilibrium.
D) The insider’s information is often used without the firm’s permission in a way that harms the stockholder’s interests.