What will happen in the bond market if the government imposes a limit on the amount of daily transactions? Which characteristic of an asset would be affected?

A. Liquidity of bonds relative to other assets will decrease, increasing the interest rate and lowering bond's prices.

B. Liquidity of bonds relative to other assets will increase, decreasing the interest rate and lowering bond's prices.

C. Riskiness of bonds relative to other assets will decrease, increasing the interest rate and increasing bond's prices.

D. Riskiness of bonds relative to other assets will increase, decreasing the interest rate and increasing bond's prices.

Question

Business

Salma Rollins

1 April, 21:50

What will happen in the bond market if the government imposes a limit on the amount of daily transactions? Which characteristic of an asset would be affected?

A. Liquidity of bonds relative to other assets will decrease, increasing the interest rate and lowering bond's prices.

B. Liquidity of bonds relative to other assets will increase, decreasing the interest rate and lowering bond's prices.

C. Riskiness of bonds relative to other assets will decrease, increasing the interest rate and increasing bond's prices.

D. Riskiness of bonds relative to other assets will increase, decreasing the interest rate and increasing bond's prices.

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Answers (1)

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Julie Lambert · Answer 1

A. Liquidity of bonds relative to other assets will decrease, increasing the interest rate and lowering bond's prices.

Explanation:

As the bonds have a maximum amount of daily transactions, each transaction reduces the liquidity of the bonds as they will not be converted to cash once the maximum threshold comes into play.