1. A bank employee uses confidential information about a corporate client's upcoming merger to buy shares before the news is public. This is an example of:
Whistleblowing
Money Laundering
Insider Trading
Ethical Investing
Explanation:
Insider Trading involves trading in a public company's stock by someone who has non-public, material information about that stock. It is illegal and unethical.
2. A "Conflict of Interest" occurs when:
Two departments compete for budget.
An employee disagrees with their boss.
A customer complains about service.
An individual's personal interests interfere, or appear to interfere, with their professional duties and responsibilities.
Explanation:
Conflict of interest creates a risk that professional judgment or actions will be biased by a secondary interest (e.g., a loan officer approving a loan for their own relative).
3. "Window Dressing" of a balance sheet by a bank is considered unethical because:
It involves decorating the bank branch.
It is done only once a year.
It reduces the profit of the bank.
It presents a distorted and more favorable view of the financial position than reality to mislead stakeholders.
Explanation:
Window dressing involves manipulating financial statements (e.g., temporarily boosting deposits at year-end) to make the company look better performing than it actually is. This violates the principle of transparency.
4. In banking, a "Chinese Wall" refers to:
A physical barrier in the branch.
A ban on trading with Chinese companies.
An information barrier designed to prevent the exchange of confidential information between different departments (e.g., Investment Banking and Equity Research).
A firewall in the IT system.
Explanation:
The Chinese Wall policy is critical to manage conflicts of interest. It ensures that sensitive information obtained by one department does not leak to another department that could use it for unfair trading or advice.
5. "Mis-selling" in banking primarily refers to:
Selling a product to a customer that is unsuitable for their needs or without explaining the risks, often to meet targets.
Selling bank assets to recover loans.
Selling products at a discount.
Selling counterfeit notes.
Explanation:
Mis-selling is a major ethical issue where employees prioritize their sales targets or commissions over the customer's best interest (e.g., selling a long-term insurance policy to an elderly person who needs liquidity).
6. Strict adherence to KYC/AML norms is not just a legal requirement but an ethical one because:
It allows banks to sell customer data.
It slows down account opening.
It helps prevent the banking system from being used for criminal activities like terrorism financing.
It increases paperwork.
Explanation:
Ethically, bankers have a duty to society to ensure their platforms are not exploited to harm the public or the nation. Negligence in KYC can facilitate crime.
7. "Creative Accounting" refers to:
Using accounting loopholes to portray a better financial image than reality.
Writing accounts in poetry.
Innovating new accounting software.
Designing colorful balance sheets.
Explanation:
It is an unethical practice where accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business.
8. A manager forcing a subordinate to falsify reports under threat of firing is an example of:
Teamwork
Abuse of Official Position/Power
Mentorship
Leadership
Explanation:
This involves using one's authority to coerce others into unethical acts, which is a severe ethical violation.
9. The Internal Committee (IC) for sexual harassment must have at least what percentage of women members?
Explanation:
The POSH Act mandates that at least one-half of the total members of the Internal Committee so nominated shall be women.
10. Accepting a "Kickback" (commission) from a vendor for approving their contract is:
A standard business practice.
An act of corruption and bribery.
A valid incentive.
A sign of good negotiation.
Explanation:
Kickbacks are illegal payments made in return for a service or favor. It compromises the objectivity of the decision-maker.
11. "Nepotism" in the workplace refers to:
Promoting based on merit.
Favoritism shown to relatives or friends, especially by giving them jobs.
Firing incompetent employees.
Hiring the most qualified candidate.
Explanation:
Nepotism undermines fairness and meritocracy, leading to poor organizational performance and resentment among other employees.
12. Spreading false rumors about a competitor bank to gain market share is a violation of:
Insider Trading
Money Laundering
Cyber Security
Fair Competition Ethics
Explanation:
Ethical competition involves competing on merit (product, service) rather than sabotage or deception. Spreading lies is unethical and potentially illegal (defamation).
13. The unethical practice where a broker/dealer executes orders on a security for their own account while taking advantage of advance knowledge of pending orders from customers is called:
Front Running
Short Selling
Insider Trading
Price Rigging
Explanation:
Front Running is unethical because the broker profits at the expense of the client by stepping in front of the client's large order, which might have moved the market price.
14. Evergreening of loans is considered unethical because:
It helps the customer.
It reduces the loan portfolio.
It increases the bank's profit too much.
It masks the true asset quality by granting new loans to pay off old defaulted loans, delaying problem recognition.
Explanation:
Evergreening is a deceptive practice used to prevent a loan from being classified as NPA. It misleads stakeholders about the bank's health and eventually leads to bigger losses.
15. Using unlicensed software on bank computers is an ethical violation related to:
Customer Privacy
Intellectual Property Rights (IPR) infringement
Insider Trading
Money Laundering
Explanation:
Software piracy violates the copyright of the creator (IPR). Banks must ensure all software used is legally licensed to maintain ethical standards.
16. Which action demonstrates good "Cyber Ethics" by a bank employee?
Opening email attachments from unknown sources.
Sharing password with a colleague to get work done faster.
Using office email for personal subscriptions.
Locking the computer screen when stepping away from the desk.
Explanation:
This prevents unauthorized access to sensitive bank data. Sharing passwords or opening suspicious emails violates security policies and ethics.
17. What is the ethical difference between a "Gift" and a "Bribe"?
There is no difference.
The value: Gifts are always cheap.
The intent: Bribes are given with the intent to influence a decision; Gifts are gestures of goodwill without expectation of return.
Bribes are given in cash; Gifts in kind.
Explanation:
While the line can be thin, the key is "Expectation of Reciprocity." If it's given to sway a business outcome, it's a bribe (unethical).
18. Information that is "Price Sensitive" and "Unpublished" is known as:
Public Information
UPSI (Unpublished Price Sensitive Information)
General Knowledge
Trade Secret
Explanation:
Trading based on UPSI is the core of Insider Trading violations. It includes financial results, dividends, mergers, etc., that have not yet been made public.
19. To manage Conflict of Interest effectively, an employee should:
Ask a friend to make the decision.
Proceed with the decision if it benefits them.
Disclose the conflict to the management and recuse themselves from the decision-making process.
Hide the conflict.
Explanation:
Transparency (Disclosure) and Recusal (stepping back) are the standard ethical procedures to handle conflicts of interest.
20. A bank sanctioning a loan to a company owned by the Chairman's spouse without disclosing the relationship violates regulations on:
Related Party Transactions.
Foreign Exchange.
Priority Sector Lending.
Digital Payments.
Explanation:
Transactions with related parties (relatives of directors) must be at "Arm's Length" (fair market terms) and fully disclosed to prevent conflict of interest and favoritism.
21. An employee leaves their computer unlocked, leading to a data breach. This is a failure of:
Environmental ethics.
Professional Competence and Due Care.
Marketing ethics.
Accounting standards.
Explanation:
Due care involves taking reasonable steps to prevent harm. Negligence in basic security hygiene violates the duty of care towards customer data.
22. If a whistleblower reports a fraud anonymously, the ethics committee should:
Delete the complaint.
Try to find the identity of the person to fire them.
Ignore it because it is anonymous.
Investigate the merit of the allegation objectively.
Explanation:
While anonymity makes investigation harder, the substance of the complaint matters. Ignoring it could allow fraud to continue. Retaliation (C) is unethical and illegal.
23. If a client offers a bank employee an expensive watch to expedite a loan application, the employee should:
Accept it and donate it.
Politely refuse, explaining the bank's policy against gifts.
Accept it quietly.
Ask for cash instead.
Explanation:
Accepting valuable gifts creates a conflict of interest and resembles bribery. Refusal maintains integrity.
24. Banks usually restrict employees from frequent speculative trading in the stock market to avoid:
Distraction from work and potential conflicts of interest.
Competition with customers.
Loss of personal money.
Market crash.
Explanation:
Excessive trading distracts from duties and may lead employees to use bank resources or information for personal gain.
25. Altering data in a loan application to make a borrower appear eligible is:
Standard procedure.
Creative thinking.
Helping the customer.
Data Fraud and Unethical.
Explanation:
Falsifying data compromises the bank's risk management and integrity. It is fraud.