Question 35
Financial InstitutionsA rise in the market price of fixed interest securities is an indication that the
- A.supply of money has decreased
- B.liquidity preference has increased
- C.market rate of interest has risen
- D.market rate of interest has fallen.
Show the answer and explanation
Answer: D (market rate of interest has fallen.)
Explanation
A bond pays a fixed amount each year. When market interest rates fall, that fixed payment becomes more attractive, so the bond's price rises.