Review some concepts like agency theory and insider trading. Provide examples of each.
Solution
Agency Theory: A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company\'s executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk
Example: Investment Banks act as agents for their clients.
Insider Trading: Insider trading is defined as a malpractice wherein trade of a company\'s securities is undertaken by people who by virtue of their work have access to the otherwise non public information which can be crucial for making investment decisions.
Example: A high-level employee of a company overhears a meeting where the CFO is talking about how the company is going to be driven into bankruptcy as a result of severe financial problems. The employee knows that his friend owns shares of the company. The employee warns his friend that he needs to sell his shares right away.
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Mattingly "AI & Prompt Design: Named Entity Recognition"
Review some concepts like agency theory and insider trading- Provide e.docx
1. Review some concepts like agency theory and insider trading. Provide examples of each.
Solution
Agency Theory: A theory explaining the relationship between principals, such as a shareholders,
and agents, such as a company's executives. In this relationship the principal delegates or hires
an agent to perform work. The theory attempts to deal with two specific problems: first, that the
goals of the principal and agent are not in conflict (agency problem), and second, that the
principal and agent reconcile different tolerances for risk
Example: Investment Banks act as agents for their clients.
Insider Trading: Insider trading is defined as a malpractice wherein trade of a company's
securities is undertaken by people who by virtue of their work have access to the otherwise non
public information which can be crucial for making investment decisions.
Example: A high-level employee of a company overhears a meeting where the CFO is talking
about how the company is going to be driven into bankruptcy as a result of severe financial
problems. The employee knows that his friend owns shares of the company. The employee warns
his friend that he needs to sell his shares right away.
