The Market Segmentation Theory of the Term Structure of Interest

question 8

Multiple Choice

The market segmentation theory of the term structure of interest rates

• A)assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long-term.
• B)assumes that the yield curve reflects the market's current expectations of future short-term interest rates.
• C)assumes that market rates are determined by supply and demand conditions within fairly distinct time or maturity buckets.
• D)fails to recognize that forward rates are not perfect predictors of future interest rates.
• E)assumes that both investors and borrowers are willing to shift from one maturity sector to another to take advantage of opportunities arising from changing yields.

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Definitions:

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A device used to measure the rate of flow of liquids or gases through a pipe.

Pressure Gauge

A tool or instrument used to measure the pressure of a gas or liquid in a system.

Gate Valve

A type of valve that uses a flat plate to open or close the flow of liquid in a pipeline, commonly used for on/off control rather than flow regulation.

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