Answer the following MCQS

a) If a yield curve is upward sloping,

(only one possible answer)

future interest rates must be higher than current interest rates.

bond prices trade higher than 100% of notional.

forward rates trade higher than zero-coupon spot rates.

zero-coupon spot rates must be positive.

forward rates must be positive.

b) To hedge the interest rate risk of a long position in a corporate bond,

(only one possible answer)

the floating leg payer position of an interest rate swap would be adequate.

a long position in a treasury bond future would be adequate.

a long position in a credit default swap would be adequate.

a trade with negative DV01 would help.

buying an instrument with a large duration would help.

c) At the primary bond market,

(only one possible answer)

syndicates sell bonds to the issuers.

issuers form syndicates to compete against the banks.

banks collaborate in syndicates to underwrite bond issues.

issuers engage in market making as a service to the banks.

issuers underwrite bond issues to support secondary market liquidity.

d) Imagine you are a bond portfolio manager. Your analysis tells you that inflation is likely to accelerate further and the central bank will increase interest rates. What position can you take to make maximum profit from rising rates?

(only one possible answer)

Long 1-year bond

Short 1-year bond

Short 10-year bond

Long 10-year bond, short 1-year bond