Why Is There a Requirement to Prove Reliance in Order

question 10

Essay

Why is there a requirement to prove reliance in order to recover for fraud? Why should the law not penalize a person who knowingly makes a false statement,regardless of whether the person to whom the statement is made can prove reliance? Would there be any practical problems if the reliance requirement were eliminated?

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Definitions:

Expected Returns

The anticipated profitability or yield an investment is projected to generate under normal circumstances.

Systematic Risk

The risk inherent to the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Risk Premium

The additional return an investor requires to invest in a risky asset compared to a risk-free asset, compensating for the higher risk.

Arbitrage

The practice of profiting from price differences of the same asset in different markets, exploiting inefficiencies without market risk by simultaneously buying and selling.