Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are ____ affected when the Fed____ interest rates.

Question

Quizplus · Accepted Answer

Financial institutions maintain large portfolios of bonds, which means they are negatively affected when the Fed increases interest rates. When interest rates increase, the value of existing bonds decreases, and yields rise, which negatively affects the value of bond portfolios. Therefore, option B is the correct answer.

Financial Institutions Such as Commercial Banks, Bond Mutual Funds, Insurance