1. You are long in bonds for developing countries and short in bonds for developed countries. You finance your investment by borrowing and using underlying bonds as collateral All of a sudden, Country X, a developing country, defaults on its debt obligations. Investors fear that all developing countries will default. [20 points]

1. The bond prices of developing countries will ________ because ____________________
2. The bond prices of developed countries will _________ because ____________________
3. Furthermore, collateral requirements will ___________ because ______________________
4. The value of your bond portfolio will ______________ and you will receive a ___________.