Why would the spread increase as a result of moody’s action

Assignment Help Finance Basics

Reference no: EM131304540

As mentioned in the chapter, during early 2010, investors began to worry that the government of Greece might default on its bonds. The rating agencies downgraded Greek bonds several times. Following one of the rating downgrades, an article in the Wall Street Journal noted that: The spreads-or premiums demanded by investors to lend-to Greece versus supersafe Germany blew out again Tuesday, following Moody's downgrade of Greek debt to junk status Monday. . . . The spread between Greece and Germany was 671 basis points- or 6.71 percentage points, up by a little less than 80 basis points on the day.

a. What does it mean that Moody's downgraded "Greek debt to junk status"? What is Greek debt? What is junk status?

b. What is "the spread between Greece and Germany"? Why would the spread increase as a result of Moody's action?

Reference no: EM131304540

Questions Cloud

What is a sovereign debt crisis : What are the two methods that governments typically use to avoid bank panics?- What is a currency crisis? What is a sovereign debt crisis?

What would we observe in the market for treasury bonds : If investors began to believe that the probability that the Treasury might default on its bonds had increased, what would we observe in the market for Treasury bonds? Draw a demand and supply graph for bonds to illustrate your answer.

What obstacles was robert banes facing in receiving care : What obstacles was Robert Banes facing in receiving care for his health problems? What help was available for him?

Why the financial crisis have been difficult to foresee : Why might the financial crisis have been difficult to foresee, even by people working in high-level positions in the financial system?

Why would the spread increase as a result of moody’s action : What is "the spread between Greece and Germany"? Why would the spread increase as a result of Moody's action?

Difference between retail and institutional cash flow : Compare the difference between retail and institutional cash flow to money market funds. How do they differ? Why do you think they differ?

What are their pre-tax yields : If the state and federal perpetuities both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 39.6%.)

Does a bank have to be insolvent to experience a run : What is a financial crisis?- What is a bank run? Does a bank have to be insolvent to experience a run?- What is contagion? What is the connection between contagion and a bank panic?

How do organizations create opportunitiy for illegal conduct : How do organizations create opportunities for illegal conduct?Identify the external factors that impact corporate crime. Describe Karl Marx's theory of crime as it relates to white collar crime. Discuss the limitations of the Marxist theory.

User Account

All Pages