What Can You Deduce About Forward Rates of Interest If

question 36

Multiple Choice

What can you deduce about forward rates of interest if the liquidity-preference hypothesis of the term structure is correct?

• A) The forward rate is less than investor's expectations of next year's one-year interest rate.
• B) The forward rate is greater than investor's expectations of next year's one-year interest rate.
• C) The forward rate is equal to investor's expectations of next year's one-year interest rate.
• D) The forward rate is equal to the risk-free interest rate.

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Definitions:

Low-value Bidders

Participants in an auction or competitive process who offer significantly lower bids compared to others.

Bid-rigging Cartel

A group of firms that illegally coordinate their bids to control market prices and eliminate competition in auctions or tender processes.

Winning Bid

The highest offer made in an auction that secures the purchase of the item or service.

Bidders Values

The subjective valuations that individual bidders assign to the item being auctioned.