1. Define benchmark interest rates. How do increases or decreases in benchmark interest rates affect the...

 

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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? 3. At the time the Federal Reserve Board was considering this proposal (2012-13), were benchmark interest rates relatively high or low? At the time of the proposal, do you think banks expected interest rates to increase or decrease from then (2012-13) to the present day? How would this increase or decrease in interest rates affect the fair value of banks' debt investment portfolios? → 4. Explain why banks do not want increased volatility in their regulatory capital. < Appendix A contains excerpts from FASB ASC No. 320 Investments - Debt and Equity Securities, the accounting standard governing investment classification. Read these excerpts and answer questions 5. through 8. related to this standard.< 5. According to the FASB, how should banks decide whether to classify a given debt investment as trading, AFS or HTM? Do you think banks use significant judgment in this classification decision? Explain why or why not. 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? 3. At the time the Federal Reserve Board was considering this proposal (2012-13), were benchmark interest rates relatively high or low? At the time of the proposal, do you think banks expected interest rates to increase or decrease from then (2012-13) to the present day? How would this increase or decrease in interest rates affect the fair value of banks' debt investment portfolios? → 4. Explain why banks do not want increased volatility in their regulatory capital. < Appendix A contains excerpts from FASB ASC No. 320 Investments - Debt and Equity Securities, the accounting standard governing investment classification. Read these excerpts and answer questions 5. through 8. related to this standard.< 5. According to the FASB, how should banks decide whether to classify a given debt investment as trading, AFS or HTM? Do you think banks use significant judgment in this classification decision? Explain why or why not.

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Answer When it comes to making investment in Bonds there are many crucial points that an investor sh... View the full answer