Section A (40%)

Answer all questions from Section A


Question 1

Explain briefly LIBOR and OIS rates and then comment on the following:

“2008 crisis showed us that LIBOR has its limitations. Please explain what went wrong with using LIBOR during the 2008 crisis and explain in detail why you think that using OIS rates instead of LIBOR rates would be more efficient and accurate?”

(20 points)


Question 2

Discuss the concept of the yield curve and explain how a yield curve is constructed. Discuss the various shapes a yield curve can take and briefly outline the market conditions that would lead to each shape.

(20 points)


End of Section A


Section B (60%)

Answer any FOUR (4) questions from the six questions in Section B.


Question 3

  1. Adam is an asset manager and he is overweight in equities because he believes that equities have more upside in the long run. However, he is worried that any negative news regarding COVID-19 may cause a short-term sell off in the stock markets. What kind of strategy would you recommend for him to partially hedge his portfolio and why? What are the advantages and disadvantages of the recommended strategy?                 (3 points)


  1. Adam thinks that any sell-off will be limited in size and duration. He is also concerned that implied volatility is very high, so he would like to minimize his vega exposure. Please outline 2 different strategies that Adam could follow and explain the advantages and disadvantages of each strategy. (12 points)


(Total 15 points)


Question 4

Discuss the usefulness of collective investments for the fixed income

segment of portfolios.                                                                                                                                                                                                                                      (6 points)

Discuss the main features and characteristics of ETFs (Exchange Traded Funds) and in what respect they are superior to traditional closed ended collective investment vehicles.                             (9 points)

(Total 15 points)


Questions continue on next page


Question 5

Clare is a portfolio manager for a US hedge fund based in New York. She heard recently that Apple is looking to issue a fixed coupon 5 years corporate bond in UK in GBP. She is interested in buying this bond, but she is worried that the FED may hike rates which will strengthen the dollar against all the other currencies. What would you advise Clare to do to hedge these risks if she goes ahead and buys the Apple bond?

(15 points)


Question 6

  1. Explain the different tranches of CDOs and the distribution rules of Income and Principal Cash Flows on CDOs. Discuss which tranche offers maximum protection to the investment holder.

(10 points)

  1. Using the answer to part A, elaborate further in which way CDOs can create a liquidity squeeze in the financial markets.

(5 points)

(Total 15 Points)



  1. Explain how securitisation works and what the role is of each party involved during the process.                             (10 points)


  1. Discuss why securitisation may be very beneficial for both

institutions and investors.                                                                                                                (5 points)


(Total 15 Points)


Questions continue on next page



Question 8

Georgia works as a portfolio manager for a big investment firm in London. During the last meeting of the Investment Committee, there was concern about the prices of USD and GBP bonds over the next year. The Investment Committee expressed the view that financial markets overestimate the upside of USD bonds over the next quarter and that they underestimate the upside of the USD bonds over the next year. The Committee also strongly believes that financial markets underestimate the upside of GBP bonds over the next year.

Georgia is trying to find ways to express the board’s view by trading financial instruments.

Last, but not least, the board wants to make sure that any hit on demand for government debt in general is not going to affect their business dramatically.

Could you please suggest four trades that Georgia should do to express the board’s views and any concerns she may have when she chooses which product to trade?


(15 points)


End of Section B