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discuss the risks and returns associated with using liability management to meet liquidity needs. a)Suppose the manager...

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Finance

discuss the risks and returns associated with usingliability management to meet liquidity needs.

a)Suppose the manager of a DI's liquid assetsportfolio anticipates that interest rates will rise over the nextfew years. How might this manager structure the liquid assetsportfolio to take advantage of this situation?

b)What factors should the manager take intoconsideration before implementing any strategies you haverecommended in part (a)?

Answer & Explanation Solved by verified expert
4.4 Ratings (885 Votes)
a There is an inverse relationship between the bond price and interest rates ie If the interest rate rises the bond price falls If the interest rate decreases the bond price rises The bond price falls when the interest rate rises is because example ie When interest rate is say 8 i have a bond purchased at 100 Now if interest rate rises to say 825 the value of the 100 bond will be lower as investors already have access to 825 bonds and there is    See Answer
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discuss the risks and returns associated with usingliability management to meet liquidity needs.a)Suppose the manager of a DI's liquid assetsportfolio anticipates that interest rates will rise over the nextfew years. How might this manager structure the liquid assetsportfolio to take advantage of this situation?b)What factors should the manager take intoconsideration before implementing any strategies you haverecommended in part (a)?

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