QUESTIONS: 1.

Explain the basic idea behind yen "carry trade" investors borrow money in the yen where the interest rates are low and then exchange them for currencies where the rates are high, and profit from the difference. Investors can also borrow the yen- which is lower yielding and buy bonds in higher yielding currencies. 2. What conditions must exist to make yen carry trade profitable for investors? Central banks cant have loose monetary policies- the appeal for the yen has to be there. Japans central bank has to continue flooding the market with yen currency must continue to weaken yield for yen (interest rates) lower than trading partners. 3. What risks come with yen carry trade? The interest rates could rise The feds could decrease US interest rates 4. How can futures be used to minimize the risk of yen carry trade? How would using futures to minimize this risk affect the profitability of engaging in yen carry trade?

1. Who is showing interest in buying the most complex and troubled assets tied to the bailout of American International Group? Wall street banks and investment firms. They include banks like barklays, credit suisse and Goldman Sachs 2. What is a CDO? What makes these securities so difficult to value? What role did CDOs play in the collapse of AIG? A CDO is a collateralize debt obligation.they were the financial instruments that were are the heart of the financial crisis; they plunged values of securities. It contributed to the fall of AIG because as the financial condition worsened, the NY fed bought CDO's that the insurers derivatives unit had agreed to protect against losses. The housing market then caused CDO's to nose dive. 3. The article states the potential sale of the CDOs by the New York Fed and the

government's sale of some of its AIG stock could set the stage for the U.S. to recover the bulk of its bailout money this year. How should this recovery affect future decisions about whether the government should bail out distressed financial firms? Justify your answer. If the banks get the money back, then they would have essentially been helped out twice. They profited from the bailout of AIG because the money was funneled to the banks, and now if they buy back the CDO's they will be making money again...all this while tax payer dollars were used to bail out banks. 4. What factors are driving the increased interest in the CDOs held by the Federal Reserve?

TheCDOshaveatotalunpaidprincipalbalanceof$47billionandwere valuedat37centsonthedollarinJanuary.Thebanksinterestedwouldbe buyingwiththeintentionofresellingtheCDOsorunderlyingassetsto individualclientsandinvestmentfirms.

5. Why might the Federal Reserve value the CDOs it holds differently than those who have expressed an interest in buying them?