What Is the Most Important Contrast Between the Segmented Markets

question 3

Multiple Choice

What is the most important contrast between the segmented markets theory and the expectations theory?

• A)The expectation theory states that investors view similar assets that differ only with respect to maturity as perfect substitutes.
• B)The segmented markets theory states that investors view similar assets that differ only with respect to maturity as perfect substitutes.
• C)The expectations theory does a better job of explaining why yield curves typically are upward-sloping.
• D)The segmented markets theory does a better job of explaining why yields on instruments of different maturities tend to move together.

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Definitions:

Forward Trade

Agreement to exchange currency at some time in the future.

Agreed-upon

Something that has been mutually accepted or concurred by all parties involved.

LIBOR

An average interest rate calculated through submissions of interest rates by major banks in London, used as a benchmark for short-term interest rates around the world.

Eurodollars

U.S. dollars deposited in banks outside the United States, often used for international transactions.