I also choose dropping oil prices plus local ccy appreciated as they heavily relied on the exports so this would stress their revenue
I answered that MBs yields are higher simply because they are riskier. I don't think the negative convexity is related to the DIFFERENCE between the MBS yield and the treasury yield. Negative convexity affects only the level of price due to interest rate volatility.There was one which compared the yield of mbs and treasury bond both without default risk, I marked the convexity option in the answer coz even though mbs might have higher yield it also has a call option.
I just thought of it. You're probably right. Its such a stupid mistake. Also for the Basel vs Solvency II question. What did you answer?In the MBS question, yields are definitely higher because of negative convexity due to the short call option embedded in MBS. As rates fall, borrowers are more likely to prepay so the MBS does not profit as much as a similar treasury security (where there is no prepayment option).
I think the right answer to the SCDS ban question was that it hinders price discovery. I know that something like that is said in the reading.
I remember the question...and also remember definitely not choosing any of these 2 choices..had chose one from the other two..Hi,
just remembered a question which hasn't popped up yet.
What adds more to excessive risk taking by hedge fund managers.
a) high water mark
b) incentive fees
c and d were not relevant from my point of view. I chose (better:guessed) the high water mark solution. Any ideas?