Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A fixed-income derivatives specialist working at a financial institution is tasked with understanding how to identify the most cost-effective U.S. Treasury bond to deliver when holding a short position in Treasury bond futures. The specialist aims to comprehend how the slope and shape of the yield curve impact the choice of the bonds that are deemed the least expensive to deliver.




Explanation:

C is correct. Interest rate environments where bond yields are less than 6% favor high-coupon, short-maturity bonds to be the cheapest to deliver into a futures contract.