Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

Which of the following best describes Market Manipulation?

1. A tactic to promote fair trade

2. An attempt to distort market prices

3. A method to improve market efficiency

4. A practice to encourage competition

The correct answer is: An attempt to distort market prices

Market manipulation is best described as an attempt to distort market prices. This practice involves actions taken by individuals or entities to create artificial movements in asset prices, often through deceptive or misleading means. These manipulations can include practices such as wash trading, where traders buy and sell the same financial instruments to create the illusion of demand, or spreading false information to influence stock prices. The objective of market manipulation is typically to benefit the manipulator at the expense of other market participants, undermining the principles of fair and transparent trading. This is in direct contrast to promoting fair trade or improving market efficiency, as each of those concepts aims to enhance fairness and trust in the market. Similarly, encouraging competition would typically involve ethical practices that promote healthy market dynamics, rather than distorting them for personal gain. As such, understanding market manipulation is crucial as it poses risks not only to individual investors but also to the integrity of financial markets as a whole.