Imagine a Scandal That Finds the Officers of Bond Rating

question 72

Multiple Choice

Imagine a scandal that finds the officers of bond rating agencies have been taking bribes to inflate the rating of specific bonds. This should:

• A) have no impact on the bond market since bond markets are highly efficient.
• B) decrease the demand for all bonds.
• C) increase the demand for U.S. Treasury securities and decrease the demand for corporate bonds.
• D) decrease the risk spread.

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Definitions:

Cabinet-Level Department

A major administrative unit in the executive branch of the government, typically headed by a Secretary, that deals with broad areas of national policy.

Enabling Legislation

Laws that provide the necessary authority for an entity or agency to carry out its powers and duties.

Discretionary Powers

The authority granted to an official or a body to act according to their own judgment and conscience in certain situations.

Informal Powers

Powers not explicitly stated in laws or regulations but exercised by individuals or institutions through influence, negotiation, or personal authority.