Q 1.

With reference to credit spreads and corporate bond markets, consider the following statements:

1. A credit spread is the difference between the yield on a corporate bond and a comparable government bond.
2. Widening credit spreads may indicate that investors perceive greater credit risk.
3. Widening credit spreads always indicate that the central bank has increased its policy interest rate.
4. Higher perceived default risk can increase borrowing costs for companies.

Which of the statements given above are correct?