CFAI is confusing me on this.
Quote page 86 in reading 18 CME
“normally, longer-maturity paper will pay a higher interest rate than shorter-maturity paper, even if overnight rates are expected to remain the same, because risk of loss is greater for the longer-term paper if this expectation is not fulfilled. If further rises in rates are expected over time, then 6-month and 12-month paper should offer even higher rates than short-term paper”
then, in the solution give in example 31 on the next page. They are kind of saying the opposite thing. quote "by contrast, the first strategy (buying short-term paper) counts on interest rates rising, not decline. The first strategy would produce higher returns only if interest rates rose" which to me it suggests buying short-term paper is more attractive than longer-term paper if expecting rate rises
Sheweser also agrees that cash manager should buy short-term rather than long-term if they expect rates to rise
Any one can share their thoughts?