Question #40

Reading: Reading 25 The Term Structure and Interest Rate Dynamics

PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf

Page: 16

Status: Incorrect

Correct Answer: A

Your Answer: C

Part of Context Group: Q39-40
Shared Context
- What would be the most appropriate duration-neutral strategy based on information presented in Forecast 2? A) Rotate into a barbell strategy. B) Rotate into a long-maturity bullet portfolio. C) Rotate into a short-maturity bullet portfolio.
Question
Eden's second comment about bond spreads is most likely:
Answer Choices:
A. correct
B. incorrect, because a narrowing spread indicates a reduction in risk in the banking system
C. incorrect, because the spread does not give a specific indication about risk in the banking system
Explanation
A widening TED spread is an indicator that interbank loans are becoming more risky, and that market participants believe banks are becoming more likely to default.
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