Deutsche Bank Sees No Material Impact on Moody's Cut

Source: Lead Story-Dateline: Kirchfeld, Aaron, "Deutsche Bank Sees No Material Impact on Moody's Cut,"

Bloomberg.com,

http://www.bloomberg.com/apps/news?pid=20601208&sid=alnC4pSPG12M,

posted 3/4/2010.

Moody's Investors Service, a bond rating agency, downgraded Deutsche Bank AG's debt after reassessing the bank's exposure to loss. Moody's cited the bank's "continuing preponderance of capital market activities" as one of the primary reasons for the downgrade. Other activities also produced greater "earnings volatility" than originally anticipated.

Deutsche Bank acknowledged the downgrade but maintains the change will have no "material impact" on the company's operations. A bank spokesman indicated that funding costs should remain constant since the company's earnings are expected to set a new record of 10 billion euros in 2011.

Thinking Critically Questions

1. A credit downgrade typically results in interest rate for new debt.

A.

a higher

B.

no change in

C.

a lower

D.

not enough information to tell

2. There is a(n) relationship between the price of an outstanding bond and market interest rates.

A.

positive

B.

inverse

C.

direct

D.

none of the above

3. The greater the volatility of earnings the the bond rating when everything else is held constant.

A.

higher

B.

lower

C.

there is no relationship between earnings and bond rating.

D.

volatility is irrelevant when evaluating earnings