Question

Investments FINA 30203

Please answer the following short answer questions:

The role of competition in Financial Markets

Luck Vs Skill in Mutual Fund performance

how do you read a graph of credit spreads between bonds with different ratings

whats HFT and electronic markets

explain the concept of convexity and why do investors like it?

Answer 1

3) Credit spread is the difference in yield between two bonds of similar maturity but different credit quality. For Ex :- There are 2 bonds , one is treasury notes which yields 5% and another one is corporate bond yield 8% and both have sam maturity period that is 5 years , then corporate bond to offer 300% credit spread over treasury notes.

5) Convexity is a better measure of interest rate risk , in relation to a duration because the concept of duration assumes that interest rate and bond price have a linear relationship, in general,the higher the coupon rate ,lower the convexity of a bond

investor likes convexity concept because market rate would have to surpass the coupon on bond which means there is less risk to investor  

1.) Role of competition in financial market to promote competition , make market work better in a systematic manner and to analyse market behaviour contribute towards improved efficiency in individual market . global market also:

2) In luck vs skill on mutual performance is a study based on on period between 1984-2006 in which around 3000 stock were analysed , In that study,manager generally underperform benchmark whereas 3% of top manager possess skill. Manager who under perform are by their fees . there are hints of outperformance before fees

4) HFT stands for high frequency trading . It is a type of algorithmic trading characterized by high speed, high turnover rate , and high order to trade ratio that leverage high frequency financial data

Electronic market are the information system used by multiple organisation within one or multiple tiers in economic value chain