Q6. A commercial bank has a very positive duration gap between assets and liabilities, and...
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Q6. A commercial bank has a very positive duration gap between assets and liabilities, and would like to invest in some mortgage-backed securities to hedge the interest rate risk. Please rank the following securities in terms of hedging benefit to the bank A. IO strip in a CMO B. PO strip in a CMO C. The most senior tranche (tranche A) in a CMO D. The residual tranche in a CMO E. The pass-through securities
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