While Auditing the Financial Statements of Merlyn Company,Arturo Artinez Discovers

question 11

Essay

While auditing the financial statements of Merlyn Company,Arturo Artinez discovers nonpublic,confidential information that Merlyn's earnings will be larger than earlier projected.Arturo informs his sister Selena about this,telling her,"You can make a lot of money using this information because it isn't public yet.Be discreet,however,because I'm not supposed to give you this information." Selena uses the information to purchase 20,000 shares of Merlyn.Three weeks later when,Merlyn releases the financial statements showing its actual earnings,the price of its shares rises and Selena earns a $120,000 profit.Has Selena violated Rule 10b-5 of the Securities Exchange Act?

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Definitions:

Spot Exchange Rate

The current price at which one currency can be exchanged for another.

Risk-free Rates

The theoretical return on an investment with no risk of financial loss, often represented by the yield on government securities like U.S. Treasury bonds.

Spot Exchange Rate

The ongoing market rate for the prompt conversion of one currency into another.

Futures Price

The agreed price for the underlying asset in a futures contract to be paid on the contract's settlement date.