You Must Decide Whether to Attend Class Tomorrow Morning or Take

question 34

Multiple Choice

You must decide whether to attend class tomorrow morning or take your friend to the airport. Your decision highlights the following "big idea" in economics.

• A) Institutions matter.
• B) Incentives matter.
• C) Economics is fun.
• D) Trade-offs are everywhere.

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Definitions:

Pairs Trading

A form of statistical arbitrage in which stocks are paired up based on underlying similarities and long/short positions are established to exploit any relative mispricing between each pair.

Statistical Arbitrage

A quantitative strategy that seeks to take advantage of price inefficiencies between related financial instruments by employing complex mathematical models.

Triangular Arbitrage

Triangular arbitrage is a risk-free trading strategy that takes advantage of a discrepancy between three foreign currencies in the foreign exchange market.

Carry

The profit or loss that arises from holding an investment over a period of time, considering both the cost of holding the investment and any returns it generates.