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Ethical dilemmas are everywhere in finance
Finance & Accounting
Pages 10 (2510 words)
Ethics are important in any field of life. However, it assumes greater importance in finance because finance touches our daily lives. Be it every day finance for buying daily grocery or investing ones money in the capital markets with an aim of earning maximum profits, finance touches us in various forms…
An interesting aspect of this dilemma is to understand what is considered ethical and what is not. Finance by its very nature propagates the theory of maximization of profits. Why would anyone culminate a financial transaction if there was nothing to gain out of it? Now to decide how much to earn and by what means to earn is the most interesting facet of this dilemma. In theory, an organization is considered to be an entity that works for the benefit of its shareholders. The employees of the firm are thus assumed to be the representatives of this entity. They work on the various financial models to look for avenues which have minimum risk and maximum return. The financial theory also states that people are averse to taking risk. Hence, an investment in a risky proposition would mean that the investor is expecting an above average return. Riskier the proposition, higher the return expected. But the amount of risk to be taken is something that the investor needs to understand. Another concept in financial management is that of the Net Present Value (NPV). A firm should invest only in those assets or projects which have a positive NPV. All these concepts are interlinked with the fact that ethical dilemmas will continue to haunt the stakeholders at all points of decision making while running an organization. The various theories of finance can tell what the best options to maximize returns are, but ethics relate to the means that are used to achieve those ends. ...
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