Financial Risk Manager Part 2
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A portfolio manager at a US hedge fund is exploring investment opportunities in the context of declining global interest rates since the 2007-2009 global financial crisis. During this period, the manager has noticed that there is a consistent positive cross-currency basis between a certain pair of currencies. What is the most appropriate explanation for this continued occurrence?
A portfolio manager at a US hedge fund is exploring investment opportunities in the context of declining global interest rates since the 2007-2009 global financial crisis. During this period, the manager has noticed that there is a consistent positive cross-currency basis between a certain pair of currencies. What is the most appropriate explanation for this continued occurrence?
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A
The costs for arbitrageurs to finance their positions are increasingly reflected in the basis.
66.7%
B
The costs of credit value adjustments have increased, as arbitrage positions typically eliminate counterparty risks.
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