When the Russian government defaulted on its bonds in August 1998, Multiple Choice O yields on U.S. Treasury securities fell while yields on corporate bonds rose. yields on U.S. Treasury securities rose while prices of corporate bonds rose. risk spreads did not change. risk spreads decreased significantly.
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Qd 239.
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- ASAP For some months now, the central bank has reduced the attention it pays to the levels ofinterest rates and has kept a close eye on expansion of the money supply. This policy change has made market interest rates more responsive to the high rate of inflation. a. Why would this policy change have caused interest rates to become more responsive to the high rate of inflation? b. Is this a good or a bad thing?American International Group (AIG) stood at the centre of the financial crisis of 2008. It was one of the main institutions issuing credit default swaps. With default rates increasing and the economic climate worsening, it found itself in liquidity problems. AIG was forced to seek a government rescue and was effectively nationalised. Shortly after the bailout in 2009, it also become the centre of a media firestorm in the so-called AIG bonus payments controversy. Questions:1. Critically evaluate the factors leading to AIG’s liquidity problems, bailout, and nationalisation. 2. Critically assess the reasons and judgment behind the AIG bonus payments controversy. Write a short essay imagining what would have happened if AIG hadn’t been saved.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.
- The central bank of a country is having trouble with its economy, and the financial market wants to know what you think should be done. The bank cut its policy interest rate to the effective lower bound, which wasn't low enough to stabilize the economy.What would you tell this central bank to do, based on what the Federal Reserve did during the financial crisis of 2007–2009?If the treasury bonds in country A consistently yield more returns compared to those in country B, we would see __ . (assuming treasury bonds are risk-free) a. Country A goes bankrupt b. The currency in country A appreciates against the currency in country B over time c. The currency in country A depreciates against the currency in country B over time d. The currency exchange rate is unaffected.In the fall of 2008, AIG, the largest insurance companyin the world at the time, was at risk of defaulting due tothe severity of the global financial crisis. As a result, theU.S. government stepped in to support AIG with largecapital injections and an ownership stake. How wouldthis affect, if at all, the yield and risk premium on AIGcorporate debt?
- Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. When the economy is weakening, the Fed is likely to increase short-term interest rates. During the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the United States and several other nations. The demand for US Treasury bonds increased, which led to a rise in their price and a decline in their yields. When the economy is weakening, the Fed is likely to decrease short-term interest rates. True FalseWhat caused the Collapse of 2008 in the Financial Markets? How did interest rates contribute to the Collapse? What did the Federal Reserve do to help the economy recover?Which one of the following statements is an example of unsystematic risk? The number of vehicles sold by a major manufacturer was less than anticipated. GDP was 0.5 percent lower than expected. The inflation rate increased by 5 percent. The value of the dollar declined against the other major currencies.
- Should the economy’s current fragile recovery gather momentum, it is likely the Federal Reserve will decide to subtract liquidity from the economy. How will it do that? By selling U.S. Treasury bonds By purchasing U.S. Treasury bonds By having the U.S. Treasury purchase goods and services By having the U.S. Treasury lower taxes By having the U.S. Treasury raise taxes8. What is not an illustration of the European sovereign debt crisis around 2011? a) Interest rates converging to very low levels b) Dealing with lower tax revenues c) High outlays for bailouts of financial institutions d) Fear of European governments defaultIf the U.S. Treasury deposits income tax receipts into its account at the Federal Reserve, then a. the money multiplier will decrease b. the money multiplier will increase c. the monetary base will decrease d. the monetary base will increase Expected inflation can be estimated as a. the return on a TIPS bond b. the return on a Treasury bond c. the return on a TIPS bond minus the return on a Treasury bond d. the return on a Treasury bond minus the return on a TIPS bond A decrease in the expected return on stocks will a. shift the demand curve for bonds leftwards b. shift the demand curve for bonds rightwards c. shift the supply curve for bonds leftwards d. shift the supply curve for bonds rightwards Which of the following is part of M2? a. Small time deposits b. Money market mutual funds c. Currency held by foreigners d. All of the above