If Liquidity Influences the Yield Curve, but Is Not Considered

question 71

Multiple Choice

If liquidity influences the yield curve, but is not considered when deriving the forward interest rate, the forward interest rate ____ the market's expectation of the future interest rate.

• A)overestimates
• B)accurately estimates
• C)underestimates
• D)is an unbiased forecast of (it has an equal chance of overestimating or underestimating)

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Definitions:

Withholding Table

A chart that helps employers determine the amount of taxes to withhold from employees' paychecks, based on their earnings and tax status.

Credit Purchases

Transactions in which goods or services are bought now but payment is deferred to a later date.

Suppliers

Entities that provide goods or services to another company, often playing a critical role in the production process or supply chain.

Operating Cycle

The period of time it takes for a company to purchase inventory, sell products, and receive cash from sales.