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a) Explain how Credit default swap (CDS) would reinforce Collateralized Debt Obligation (CDO) in causing the U.S. subprime mortgage crisis in 2006/2007. (20 marks) b)

a) Explain how Credit default swap (CDS) would reinforce Collateralized Debt Obligation (CDO) in causing the U.S. subprime mortgage crisis in 2006/2007.

(20 marks)
b) Explain the tradeoff between liquidity and reinvestment risks of lending a fixed-rate mortgage loan.

(10 marks)

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