Interest Rate Markets Quiz 6

The main sources of risk for interest rate securities include:

risk: Rising ________ _____ cause the price or present value of a debt security to fall. This will generate a capital loss for the investor, and will reduce the amount of principal available to the borrower. This risk is also known as ' risk'.

risk: This is the risk that the borrower will default either on the principal amount owed or the interest payments owed. (also known as risk).

risk: Fixed interest securities are valued on the assuption that all future cash flows are __-________ at the current market interest rate.

or risk: This is the risk that the borrower's name is not readily traded in interest rate markets, therefore adding to the cost of buying and selling the debt security.

risk. _________ reduces the purchasing power of cash flows that will be occurring in the future.

risk. In some countries it is illegal for foreigners to own government debt.

risk. This affects interest rate securities that are issued in a foreign country where the income and capital gain from the investment could be diminished due to adverse changes in the foreign exchange rates.

Interest Rate Markets Quiz 7