A Normal Bond Values Fall with Interest Rate Increases but the Following

question 74

Multiple Choice

A normal bond values fall with interest rate increases but the following bond often has a negative duration and therefore it is potentially attractive to banks and non-bank FIs seeking to hedge their regular bond and fixed-income portfolios.

• A)A Class
• B)B Class
• C)Z Class
• D)R Class

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Definitions:

Excess Reserves

are bank reserves held in excess of what is required by the central bank, which can be lent out to earn interest.

Money Expansion Process

The increase in the total amount of money in circulation or in the money supply, facilitated by mechanisms such as lower interest rates or quantitative easing.

Demand Deposits

Bank account balances that can be accessed and withdrawn by the depositor at any time without advance notice.

Money Supply

The complete value of all money resources in an economy during a particular time frame.