Regulation limits FI investment in non-investment grade bonds (rated below Baa or non-rated).What kind of risk is this designed to limit?

Question

Quizplus · Accepted Answer

The regulation limits FI investment in non-investment grade bonds to limit credit risk. Non-investment grade bonds (rated below Baa or non-rated) are considered to have a higher credit risk, meaning that the issuer is more likely to default on their payments. By limiting investment in these bonds, FIs reduce their exposure to potential losses from default.

Regulation Limits FI Investment in Non-Investment Grade Bonds (Rated Below