A Derivative Is a Financial Instrument Whose Value Is Determined

question 15

Multiple Choice

A derivative is a financial instrument whose value is determined by

• A)a regulatory body such as the FTC.
• B)the value of an underlying asset.
• C)hedging a risk.
• D)speculation.

Recognize the role of government and insurance regulations in addressing moral hazard in industries like banking and savings & loan.

Understand and apply the principal-agent framework to different business scenarios, including compensation schemes.

Distinguish between moral hazard and adverse selection problems in insurance and financial markets.

Identify strategies for addressing the principal-agent problem, including incentive structures and monitoring.