Question

1. Briefly describe the pros and cons of a modest allocation to emerging markets bonds for risk-tolerant investors. Assume the currency risk will be hedged.

2.Which of the following have been causes of municipal bankruptcies in the past?

  

a. Revenue bonds issued for projects which become too costly to complete.

b. Deteriorating economic conditions

c. The question is misleading - municipal bonds, like U.S. Treasury bonds, have never defaulted.

d. Fraud or mismanagement of the project

e. Revenue bonds issued for projects which are deemed unnecessary

3.

Answer 1

1.

Benefits of investing in emerging markets bonds -

You may be asking yourself, "Why invest in emerging markets bonds?" Here are two potential advantages to consider:

• Growth. The biggest advantage of emerging market bondsinvestments is the potential for high growth.
• Diversification. International investments can be a good diversifier for your investment portfolio because economic downturns in one country or region, including the U.S., can be offset by growth in another.

Risks of investing in emerging markets bonds

Experts often categorize emerging market risk in three ways:

• Political risk. Emerging markets may have unstable, even volatile, governments. Political unrest can cause serious consequences to the economy and investors.
• Economic risk. These markets may often suffer from insufficient labor and raw materials, high inflation or deflation, unregulated markets and unsound monetary policies. All of these factors can present challenges to investors.

2.

b. Deteriorating economic conditions

Most recently one of the states of US has faced bankuptcy due to corona virus because of deteriorating economic conditions