Why have foreign investors historically been more likely to invest in u. s. government bonds than in u. s. corporate stocks and bonds? a. compared to u. s. corporate stocks and bonds, u. s. government bonds pay higher rates of return. b. u. s. government bonds have longer maturities than u. s. corporate stocks and bonds. c. u. s. government bonds are less risky than u. s. corporate stocks and bonds. your answer is correct. d. relative to u. s. corporate stocks and bonds, u. s. government bonds are less liquid. in 2016, why did foreign investors invest more in u. s. corporate bonds than in u. s. government bonds? a. u. s. government bonds paid a relatively low rate of return. b. the exchange rate of dollars to foreign currencies decreased. c. the risk associated with holding u. s. government bonds increased. d. the supply of u. s. government bonds was restricted.

1) Why have foreign investors historically been more likely to invest in U.S. government bonds than in U.S. corporate stocks and bonds?

C. U.S. government bonds are less risky than U.S. corporate stocks and bonds.

U.S. Government bonds are less risky than corporate bonds or stocks because investors believe that the U.S. government will never default: it will always have money to pay its debts, whether through existing tax income, or by taxing more, or even by having the Fed print more money, or issuing more debt.

Risk is mostly associated with the probability of default, and as corporations can go bankrupt, their bonds are riskier. Companys in shaky financial conditions can still issue bonds, but these bonds are qualified as "junk", pay very high coupon rates, but the issuers are likely to default.

2) In 2016, why did foreign investors invest more in U.S. corporate bonds than in U.S. government bonds?

A. U.S. government bonds paid a relatively low rate of return.

After the financial crisis of 2008, the Fed employed a monetary policy known as Quantitative Easing. Quantitative Easing simply consists in injecting enormous amounts of dollars into the economy with the goal of reviving growth.

Quantitative Easing caused low interest rates of around 0% because the money supply was very high, including the supply of loanable funds (for example, U.S. Securities such as government bonds). This means that the coupon rates for U.S. bonds were abnormally low.

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