Explain How Opportunities for Comparative Advantage May Arise

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The Answer is Opportunities for comparative advantage-based strategies rely on the existence of market segments.These may exist because:
i. Fixed-rate investors could be more sensitive to credit risk than floating-rate lenders, and thus impose higher risk premiums on borrowers with lower credit standing.ii. Borrowers may experience a 'home-ground advantage', meaning that they can borrow on more favourable terms domestically (where they are well known to the domestic capital market)than is possible in foreign markets.iii. Taxes and other regulations may impact different groups of borrowers in different ways, encouraging them to borrow from a particular market despite their interest rate exposure preferences.

Explain How Opportunities for Comparative Advantage May Arise

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