If a Bond Trader Believes That Current Forward Rates Overstate

question 41

Essay

If a bond trader believes that current forward rates overstate future spot rates, how might he or she profit from that conclusion?

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Definitions:

Debt Securities

Financial instruments representing a loan made by the investor to the issuer which may include bonds, notes, and bills.

Market Value

The current price at which an asset or service can be bought or sold in a public market, often determined by supply and demand dynamics.

Available-For-Sale

A classification for financial assets indicating that they are available for sale before maturity or when they are not classified in other categories.

Brokerage Fees

Charges imposed by a broker for facilitating transactions such as purchases, sales, and advice on these transactions.