University of the People BUS 2203 – Principles of Finance1 Discussion Assignment Unit 2 June 2021 What will happen to bond prices if terrorism ended and the world’s nations unilaterally disarmed and adopted free trade policies? Why? In order to fully understand the impact ending terrorism would Have on bond prices, we first need to understand how terrorism currently affects world’s economies. According to CFA institute’s Journal review (2016) Terrorism has a statistically and economically significant impact in countries where it occurs, resulting in a higher cost of debt for the sovereigns and for the firms in those countries. The effects are greater in developing than developed markets.”Terrorism can result in a higher cost of debt for the governments of affected countries as well as for companies located in those countries. By extension, such heightened risk may result in lower bond ratings for the sovereign” (Ross, 2016). “There are numerous factors, both fundamental and technical, that impact bond prices. Fundamental factors include overall economic activity and the ensuing inflationary pressures, unemployment, and budget and trade deficits. Credit concerns with specific issuers may negatively affect the price of an issuer’s securities as well. Technical factors influencing supply and demand of the bond market in general as well as particular bonds can lead to significant price movements”(Strumeyer, 2005, p.49). “The risks associated with terrorism will remain a salient issue for the foreseeable future. In addition to the direct cost that it exerts through loss of life and damage to property and infrastructure, terrorism imposes longer-term indirect costs in the form of reduced demand for goods and services, supply chain interruptions, increased cost of doing business because of the need for insurance, and decreased foreign direct investment as a result of capital flight” (Ross, 2016). The end of terrorism and world governments unilaterally disarming trade policies, the world would become a fair trading ground where previous factors that affected bond prices would no longer be in play. Bond prices would stabilize. Reference: Strumeyer, Gary. Investing in Fixed Income Securities: Understanding the Bond Market. Hoboken, NJ: John Wiley and Sons, 2005. https://www.cfainstitute.org/en/research/cfa-digest/2016/04/terrorism-and-its-impact-on-the-cost-of-d ebt-digest-summary