Which of the following statements concerning a global view of the bondmarket is correct? A. US dollar - denominated bonds distribute both interestand principal payments in euros. B. Foreign bonds, like junk bonds, havehigh default risk.C. Exchange rate fluctuations influence the returns eamedon foreign - pay bond holdings.D. The United States today accounts forabout seventy-five percent of the available fixed-income securitiesworldwide.

Let's analyze each statement:A. US dollar-denominated bonds distribute both interest and principal…

Answered: Which of the following statements…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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17. Which of the following statements is true about bonds in the US? A) State and local governments have no default risk on their bonds. B) Bonds issued by the state and local governments are referred to as municipal bonds. C) All bonds issued by state, local, and federal governments are exempt from federal income tax. D) Local government bond coupons are usually higher than Treasury bonds coupons. 18. Under normal economic conditions, the yield curve is A) gently upward sloping. B) mound shaped. C) flats. D) bowl-shaped. 19. The main assumption in the segmented market theory is that bonds have different maturities A) are not substitutes for each other. B) is a perfect substitution. C) is substitutes only if the investor is given a premium incentive. D) is substitutes but not a perfect substitution.
Fannie Mae and Freddie Mac play an important role in the mortgage market. True False The effective yield on foreign money market securities is not affected by exchange rate movements. True False
Which one of the following terms is used to describe international bonds issued in a single country and generally denominated in that country's currency? A. Eurobonds B. American Depositary Receipts C. Foreign bonds D. Swaps E. Gilts
Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be multiplied when the lending country's currency appreciates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because as the currency of the lending country appreciates, it becomes more expensive for the borrowing company to repay the initial loan. The statement is valid, because as the currency of the lending country appreciates, it becomes cheaper to repay the initial loan and thus increase savings. If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be by the…
Which of the following statements regarding the U.S. bond market is INCORRECT? Group of answer choices a The U.S. real interest rate has never been negative in the history. b There is no significant relation between long-term interest rates and future long-term inflation. c The Fed Model implies a negative relationship between the interest rate and the stock market valuation. d The U.S. bond market has been experiencing a boom recently.
pm.1
Which of the following is an example of a systematic risk? Bond investor invests in a Japanese investment grade bond and receives coupon payments in Japanese yens A firm hires a former politician with ties to the Republican party when a political climate in the state changes U.S. government announces an increase in corporate tax rate Bond investor receives news about a bond issuer issuing another corporate bond
Which of the following is an example of a firm-specific risk? The Federal Reserve decreases the federal funds rate U.S. government announces an increase in corporate tax rate Bond investor invests in a Japanese investment grade bond and receives coupon payments in Japanese yens Bond investor learns from the news that the inflation rate is expected to increase next year
The table below shows interest rates on 10-year bonds for a sample of countries that share a common currency (the euro) (Source: Bloomberg, 08/2018). Assume that investors are not entertaining the possibility that one of these countries will abandon the euro (and expose investors to exchange rate risk). Which country is likely considered to be the greatest default risk among the group? Spain Greece Netherlands Italy France Italy Spain Netherlands Portugal Greece 0.68% 3.09% 1.45% 0.42% 1.82% 4.21%
Which of the following statement is true? Interest rates on Municipal bonds are on average Question 24 options: lower than those of the U.S. government bonds with the same terms to maturity because municipal bonds are not as liquid as the U.S. government bonds . higher than those of the U.S. government bonds with the same terms to maturity because municipal bonds are not as risky as the U.S. government bonds . lower than those of the U.S. government bonds with the same terms to maturity because municipal bonds are not as risky as the U.S. government bonds . lower than those of the U.S. government bonds with the same terms to maturity because many local business prefers municipal bonds. higher than those of the U.S. government bonds with the same terms to maturity because municipal bonds are not as liquid as the U.S. government bonds .
Bond X has a higher yield than Bond Y, what can be the reason? A Bond X has a longer history of selling to customers on credit B Bond X is issued by a service oriented company while bond Y is from a manufacturer C Bond X is in India, where the inflation rate is higher than the US, where Bond Y is issued D Bond X has a single A credit rating and Bond Y has a BBB credit rating
Which of the following are reasons why an MNC might issue bonds in a particular foreign market? Check all that apply. There is stronger demand for bonds issued by the MNC in a foreign market as opposed to the domestic market. The currency in that foreign market is expected to appreciate against the MNC's home currency. There is a lower interest rate in that foreign country. The MNC intends to finance a project in a specific country and in a specific currency. If there is for a bond, a bondholder may not be able to sell a bond at the desired time or may have to decrease the price of their bonds in order to sell them. The risk of this occurrence is known as risk.

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