A the globalization of business activity b increased

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a. the globalization of business activity b. increased volatility in foreign exchange rates c. Improved computer and telecommunications technology d. the reduction in trade barriers and standardization of regulations. (c) 25. Investors in U.S. Treasury STRIPS are primarily interested in eliminating which of the following bond investor risks? a. default risk b. price risk c. reinvestment risk d. foreign exchange risk (c) 26. Industrial development bonds ( IDBs) are debt securities issued by: a. the federal government b. non profit organizations c. state and local government agencies d. non financial businesses. (d) 27. The largest investor in municipal bonds is: a. commercial banks b. property and casualty insurance companies c. life insurance companies d. households (b) 28. The fastest growing debt sector in the U. S. is: a. Treasury debt b. federal agency debt c. mortgage debt d. corporate debt (d) 29. The demand for junk bonds came primarily from a. life insurance companies b. savings & loans association c. pension funds d. all of the above (a) 30. The quality of a financial guarantee depends on the reputation and financial strength of the a. the guarantor b. the investor c. the borrower d. none of the above
65 ESSAY QUESTIONS 1. Compare and contrast the characteristics of the securities of the money market with those of the capital market. Answer: Money market securities are short-term, usually less than nine months, while capital market securities are from five to one hundred years. The money market is largely a “primary” market with secondary market activity. The capital market is a secondary market with some primary market additions. All money market securities are unsecured debt, while equities and debt, some collateralized, make up the capital market. 2. What might determine whether an individual investor buys corporate or municipal bonds? Give an example. Answer: Everything else being the same, an individual investor would select the higher after-tax return; so the relative yields and marginal tax rate of the investor will likely determine the choice of corporate bonds or muni’s. For example with a 7% yield available on a corporate bond, for an individual in the 28% marginal tax bracket would have to find an equivalent (term and rating) 5.04% municipal or state bond. For individuals’ pension money in a tax-deferred program, one would invest in the taxable securities. 3. List and discuss the risks faced by bond investors. Answer: Bond investors may face a variety of risk including default risk, inflation risk, price risk and reinvestment risk (coupon bond), foreign exchange risk and/or political risk if an international investment, and market risk (risk of a constant ready market). 4. U.S. Treasury STRIPS are of interest to individuals with IRA's or $401k pension plans. Why?

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