Term Structure Flashcards
Typically, expectations curves are expected to be
flat
When market yield curves are flat,
short-term interest rates are about the same as long-term interest rates
According to the expectations theory of the term structure, the interest rate on a long term bond will equal the ____ of the short term interest rates that people expect to occur over the life of the long term bond
average
The segmented markets theory can expain
why yield curves usually tend to slope upward
According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected to
rise in the future
According to the preferred habitat theory of the term structure, a flat yield curve indicates that short term interest rates are expected to
decline in the future
According to the pure expectations theory of the term structure, a a steeply upward curving yield curve indicates that short term interest rates are expected to
rise sharply in the future
When the actual yield curve is flat or downward sloping, it suggests that the economy is more likely to enter
a recession
A _____ market yield curve predicts a future increase in inflation
steeply upward sloping
When market yield curves are slightly upward sloping
long term interest rates are above short term interest rates
A steeply upward sloping yield curve would be most commonly observed
at the trough of a recession
According to the segmented markets theory of the term structure, and inverted yield curve indicates
nothing about future short term interest rates
A _____ market yield curve could be considered an indicator for stable future inflation rates
slightly upward sloping
Which theory of term structure asserts that lenders and borrowers have absolute preferences for specific time to maturity?
segmented markets
The term structure of interest rates is
the relationship among interest rates on bonds with different maturities
