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

Regulation limiting FI investment in non-investment grade bonds is designed to limit credit risk. Non-investment grade bonds are considered more risky than investment grade bonds, so investment in them carries a higher risk of default by the issuer, which increases the credit risk for the FI. Limiting investment in these bonds helps to reduce the credit risk exposure of the FI's portfolio.

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