BLOOMBERG MARKET CONCEPTS
ASSESSMENT TEST 2026 TESTED QUESTIONS
WITH FULL SOLUTION GRADED A+
◉ credit default swaps. Answer: popular alternative to monitoring
credit ratings
^^ more timely warning of default bc real-time readings based on
traded instruments
higher CDS spread = higher risk
◉ short-term interest rates. Answer: cutting short-term interest
rates lowers bond yields
^^ price would increase to equalize
lifting short-term interest rates increases bond yields
^^ investors sell bonds until price equalizes
◉ inflation (bonds). Answer: inflation has a corrosive effect on price
of fixed income instruments
^^ impacts of inflation are compounding
,correlation btwn inflation and bond yields
(high inflation = high yield)
bond yields are nominal, not real, bc don't adjust yield calculation
for inflation
winners & losers from inflation:
lenders + inflation = -
lenders + deflation = +
borrowers + inflation = +
(inflate away debt... monthly payments become less of a burden...
employer raises salary to keep up w/ increased costs of living)
borrowers + deflation = -
◉ potential causes of inflation. Answer: 1) excessive economic
growth
(deflation can be caused by lack of economic growth)
2) war = most extreme inflation
(bc printing money to buy weapons)
◉ TIPS. Answer: treasury inflation protected securities
, ^^ compensate lender in case of inflation using CPI as a guide
^^ exception to fixed income instruments being corroded by
inflation
^^ higher inflation expectation = greater demand for TIPS relative to
normal bonds
◉ central brank decision-making. Answer: central banks set interest
rates to protect currencies from inflation
1) inflation measures
^^ GDP deflator, CPI, PCE (fav gauge of fed)
2) the output gap
^^ difference btwn economy's potential output and its actual output
^^ tightness = inflation, slackness = deflation
^^ output gap % = (actual output - potential output)/potential
output
◉ central bank toolkit. Answer: 1) short-term interest rates
^^ tool to combat positive output gap
^^ when short-term interest rates go up, more attractive to deposit
cash
(dissuades consumption and investment)
2) statements
ASSESSMENT TEST 2026 TESTED QUESTIONS
WITH FULL SOLUTION GRADED A+
◉ credit default swaps. Answer: popular alternative to monitoring
credit ratings
^^ more timely warning of default bc real-time readings based on
traded instruments
higher CDS spread = higher risk
◉ short-term interest rates. Answer: cutting short-term interest
rates lowers bond yields
^^ price would increase to equalize
lifting short-term interest rates increases bond yields
^^ investors sell bonds until price equalizes
◉ inflation (bonds). Answer: inflation has a corrosive effect on price
of fixed income instruments
^^ impacts of inflation are compounding
,correlation btwn inflation and bond yields
(high inflation = high yield)
bond yields are nominal, not real, bc don't adjust yield calculation
for inflation
winners & losers from inflation:
lenders + inflation = -
lenders + deflation = +
borrowers + inflation = +
(inflate away debt... monthly payments become less of a burden...
employer raises salary to keep up w/ increased costs of living)
borrowers + deflation = -
◉ potential causes of inflation. Answer: 1) excessive economic
growth
(deflation can be caused by lack of economic growth)
2) war = most extreme inflation
(bc printing money to buy weapons)
◉ TIPS. Answer: treasury inflation protected securities
, ^^ compensate lender in case of inflation using CPI as a guide
^^ exception to fixed income instruments being corroded by
inflation
^^ higher inflation expectation = greater demand for TIPS relative to
normal bonds
◉ central brank decision-making. Answer: central banks set interest
rates to protect currencies from inflation
1) inflation measures
^^ GDP deflator, CPI, PCE (fav gauge of fed)
2) the output gap
^^ difference btwn economy's potential output and its actual output
^^ tightness = inflation, slackness = deflation
^^ output gap % = (actual output - potential output)/potential
output
◉ central bank toolkit. Answer: 1) short-term interest rates
^^ tool to combat positive output gap
^^ when short-term interest rates go up, more attractive to deposit
cash
(dissuades consumption and investment)
2) statements
