When a Company Whose Ability to Repay Its Obligations in Full

question 95

Multiple Choice

When a company whose ability to repay its obligations in full is uncertain

• A) it will have to issue debt with longer maturities than would a company with a lower probability of default.
• B) its bonds will sell for higher prices than would the bonds of a company with a lower probability of default.
• C) it must offer investors higher yields to compensate them for the risk they take in buying their bonds or making loans.
• D) it must do so through financial markets rather than through financial intermediaries.

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Definitions:

Exchange Rate

The price of one currency in terms of another, determining how much foreign currency can be obtained with a unit of domestic currency.

Net Exports

The value of a country's total exports minus its total imports, representing the net trade of goods and services with other countries.

Net Capital Outflows

The value of domestic assets purchased by foreigners minus the value of foreign assets purchased by residents of a country.

GDP

Gross Domestic Product, the total market value of all final goods and services produced within a country in a given period of time.