Basis risk is the risk attribUtabIle to uncertain movements interest rate risk, heightens the anxiety of traders and in the spread hetwveen vields associated with a particular arbitrageurs who are hedging their investments, and finalnclial instrumnenit or class of instriuments, and a compounds the financial institution's problem of reterence interest rate over time. There are seven tvpes matching assets and liabilities. of basis risk: Yields on Much attention has been paid to the first type of basis * Long-term versus short-terimi financial instruments.risk. In recent years, attention has turned toward * Domestic currency versLus foreigin currencies.understanding the relation between credit risk and * ILiqujid versus illiqtuid investillenits, duration. Babbel, Merrill, and Panning focus on that, * BoDnds wvith higher or lower sensitivitv to changes in emphasizing the importance of taking credit risk into interest rate volatility.account when computing measures of duration. * Taxable versuIs tax-free instruments.The consensuis of all work in this area is that credit risk * Spot VersuIs fILtures contracts. shiortens the effective duration of corporate bonds. The * Defatir-free versus non-default-free securities. authors estimate how much durations shorten because of Default Risk and the Effective Duration of Bonds
In this article I present a formal model of relative deprivation and demonstrate its implications concerning the relationship between inequality and political instability. The model, which is based on assumptions similar to those of Nagel (1974), implies that the relationship of instability to inequality can be either curvilinear, as Nagel found, or linear, as Russett (1964) found, although under different conditions. In both cases the model implies that reducing inequality reduces the level of relative deprivation, thereby enhancing the prospect for political stability. However, changes in the tendency of individuals to compare their lot with that of others can also substantially affect the level of relative deprivation in a society.
Downloaded from 10 Campbell and Alexander {ibid.) state this proposition as follows: "The greater the similarity of a person, P, to another, O, with regard to X, the more likely he is to come to be highly attracted toO." This proposition is central to the work of Festinger (op. cii.), Heider (op. cil.), Homans (op. cit.), and Newcomb (op. cii.).
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