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4.A) A friend of yours was a bit confused after recently reading a piece on a prominent financial newspaper. She/He considers you a scholar in
4.A) A friend of yours was a bit confused after recently reading a piece on a prominent financial newspaper. She/He considers you a scholar in this domain because you enrolled for MGT-3079! Presented below is the narrative of what she/he recollects from her/his reading: "Commercial banks need to make efforts to manage balance-sheet risks including sensitivity to interest-rate swings....This practice, known in industry parlance as convexity hedging, has been a significant factor in the bond market for years but has become even more momentous as a result of tighter rules adopted after the 2008 crisis.... ....Convexity tends to exacerbate market moves-if rates are going lower, convexity will make the move sharper........... When interest rates fall, many homeowners who took out fixed-rate mortgages refinance to lock in lower monthly payments. The owners of the relevant mortgages and mortgage-backed securities-including the banks -lose out on higher payment streams...As a result, the prices of mortgage bonds tend to rise less in any given bond rally than Treasury securities or some other bonds In this context, try explaining to your friend about what might be happening. (Recall the idea of convexity and how that would be applicable.) [3 pts] B) Briefly explain any two motivations for managers to undertake M & A (2 pts) COD
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