ECOM137 China and Global Financial Markets
Problem Set 3
1.Are the following statements True or False? If False, give reasons. 金融经济市场代写
(1) Fixed-payment loans promise to make a fixed number of equal interest payments at regular intervals and the principal is paid at maturity.
(2) The supply of bonds rises when governments need to borrow more.
(3) The demand for bonds rises when bonds become more liquid relative to other investments.
(4) The inflation risk of bonds comes from the uncertainty of future nominal interest rates.
(5) The debt-swap program of 2014 allowed the local governments in China to convert their debt through local government financing vehicles to local government bonds.
(6) There is one state approved credit rating agency in China that rates all types of government and corporate bonds.
2.Calculating holding period yield.
You buy a 5-year, 8 percent coupon bond at par, £100, and hold it for two years. When you sell the bond, the interest rate is 7 percent. What is the annualised holding period yield?
3.Short answers. 金融经济市场代写
(1) Use the demand and supply of bonds to predict the immediate effects on interest rates if the central bank raises expectations of inflation among investors.
(2) On January 21 2019, Financial Times reported that forty-five Chinese corporates defaulted on 117 bonds with a principal amount of Rmb 110.5bn ($16.3bn), hitting all-time peaks in terms of both the number of issuers and principal value. Search for the article, “Chinese corporate bond defaults hit record high, Fitch says.” The article says,
“Analysts have argued that the rise in Chinese bond defaults marks a positive sign of a maturing financial market after years of bailouts from Beijing.”
Why do these analysts claim that the defaults can be a positive sign?
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