Traders Working for Banks Are Subject to the

question 11

Multiple Choice

Traders working for banks are subject to the

• A)principal-agent problem.
• B)free-rider problem.
• C)double-jeopardy problem.
• D)exchange-risk problem.

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Definitions:

Interest Rate Differential

The difference in interest rates between two financial instruments or two countries, often influencing currency values and investment flows.

Forward Exchange Rate

The agreed-upon exchange rate for currencies to be exchanged on a specified future date.

Swaps

Financial derivatives contracts where two parties agree to exchange one stream of cash flows for another, often used to manage risk or speculate.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.