Problem
During a financial crises, explain what likely would happen to the following, and why? Each question is an independent question.
I. What happened to Long short equity market neutral funds in 2008, and why?
II. What happens to a currency carry trade during a crisis? Does the high interest currency appreciate or depreciate and why?
III. What happens to credit spreads and why? Do they widen or narrow? If I am long Treasury notes and short BBB corporate bonds, do I win or lose?
IV. What happened to the spreads between off-the-run and on-the-run treasuries in 2008? Did they narrow or widen and why?