As detailed above, many banks expressed concern about including unrealized gains and losses on AFS securities in the calculation of regulatory capital. The Federal Reserve Board noted: "Generally, the [banks] asserted that the proposal would introduce significant volatility in banking organizations' capital ratios due in large part to fluctuations in benchmark interest rates." Answer the following questions related to these concerns: 1. Define benchmark interest rates. How do increases or decreases in benchmark interest rates affect the yield that investors are willing to accept from debt investments? 2. Describe the relationship between a bond investment's coupon rate, face value, market interest rate and market price. For a bond with a fixed coupon rate, how would an increase in the market interest rate affect the bond's market price? How would a decrease in the market interest rate affect the bond's market price

Answer rating: 100% (QA)

Certainly Benchmark interest rates and bond pricing are fundamental concepts in fixed income investing and understanding their relationship is crucial for addressing the concerns raised by banks regar... View the full answer