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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A risk manager at a US-based fixed-income fund expects a significant decrease in mortgage prepayments. The manager evaluates the impact of this forecast on different types of government and agency securities held in the portfolio and recommends selling the asset type with the greatest downside risk. Assuming all other factors are held constant, and the level of market interest rates is unchanged, which of the following positions should the manager recommend liquidating?

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