Bond prices in the market decrease when the banks offer

Solution

• Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. • Bonds prices in the market decrease when the bank interest rate rises. Usually, when bank interest rates rise, investors deposit their money in banks. This is mainly because investors will receive a higher return with the same amount of money that was earlier invested in bonds. It will also decrease the demand for bonds in the market, further reducing bond prices. And the inverse will happen if the bank interest rates reduce, it leads to increase in the price of bonds, because investors will demand more bonds to invest in, speculating higher returns than what they would otherwise receive through banks.