#1
What is the primary function of bond markets?
To facilitate the trading of bonds
ExplanationBond markets exist to enable the buying and selling of bonds, providing liquidity to investors.
#2
Which term describes the process of combining multiple bonds into a single investment product?
Bond securitization
ExplanationBond securitization involves bundling multiple bonds into a single investment product, often for trading purposes.
#3
Which organization is responsible for conducting monetary policy in the United States and has a significant impact on interest rates?
Federal Reserve (Fed)
ExplanationThe Federal Reserve (Fed) conducts US monetary policy, influencing interest rates and economic stability.
#4
What does the term 'coupon rate' refer to in the context of bonds?
The interest rate paid by the bond issuer
ExplanationCoupon rate signifies the interest rate that the bond issuer pays to bondholders regularly.
#5
What is the relationship between bond prices and interest rates?
Inverse relationship
ExplanationBond prices and interest rates generally move in opposite directions; when one rises, the other tends to fall.
#6
Which type of bond provides investors with a fixed interest payment and returns the principal amount at maturity?
Treasury bond
ExplanationTreasury bonds offer a fixed interest payment and repay the principal amount upon maturity, considered low-risk.
#7
What is the term for the risk that interest rates will rise, leading to a decrease in bond prices?
Interest rate risk
ExplanationInterest rate risk is the potential loss in bond value due to an increase in interest rates.
#8
What does the yield curve represent in bond markets?
The curve showing the relationship between bond yields and maturities
ExplanationThe yield curve illustrates the connection between bond yields and their respective maturities.
#9
In the context of bond markets, what does the term 'duration' measure?
The sensitivity of bond prices to interest rate changes
ExplanationDuration gauges how much a bond's price is affected by changes in interest rates, indicating its interest rate risk.