Sppose the default risk of corporate bonds decreases , Financial Management

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Sppose the default risk of corporate bonds decreases

1. Suppose the default risk of corporate bonds decreases.

What would be the major effect?

Increase in demand for loanable funds (increase in supply of bonds)

Decrease in demand for loanable funds (decrease in supply of bonds)

Increase in supply of loanable funds (increase in demand for bonds)

Decrease in supply of loanable funds (decrease in demand for bonds)

Why?

b. Graphically illustrate the effect on the equilibrium interest rate and quantity of loanable funds.

2. Suppose the Federal Reserve makes a discount loan to a bank.

What would be the major effect in the market for federal funds?

Increase in demand for federal funds

Decrease in demand for federal funds

Increase in supply of federal funds

Decrease in supply of federal funds

Why?

b.Graphically illustrate the effect on the equilibrium interest rate and quantity of federal funds.

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Financial Management: Sppose the default risk of corporate bonds decreases

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Financial Management: Sppose the default risk of corporate bonds decreases

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