Sample question

1. The economy is going through a phase of expansion and growth. Industrial production and
profitability are high. Your client has a portfolio that is heavily invested in bonds. Which of the
following fears of the client is well founded?
Higher ratesof growth will increase demand for fundsand interest rateswill firm up, leadingto fall in bond prices.
Higher ratesof growth will require higher importsand expenses. The government deficitswill go up.
The central bankwill try to reduce ratesto make funding of businesscheaper and reduce costs. That will depressreturns on
bonds.
The currency will becomeconvertible andinterest rateswill rise asa consequence.