Final answer:
Yes, the complexity of accounting standards can increase inherent risk in financial instruments because it leads to misunderstandings, misinterpretations, and sometimes intentional manipulation, impacting the decision-making in financial markets.
Step-by-step explanation:
True, a factor that increases inherent risk for financial instruments is the complexity of the relevant accounting standards. Complex accounting standards can lead to misunderstandings and misinterpretations of financial data, as well as intentional manipulation of information, which increases the risk. This complexity can also contribute to imperfect information in the market, where there is not a full and equal understanding by all parties, and it can affect how firms choose between different financial capital sources. As history shows, high levels of risk can be hugely detrimental to an investment portfolio, particularly if unpredicted changes in market conditions occur. Investors need to consider the level of inherent risk and other important factors, such as the potential for profit and the historical performance of different types of financial assets.