If Research Showed That Anticipation About Future Interest Rates Was

question 5

Multiple Choice

If research showed that anticipation about future interest rates was the only important factor for all investors in choosing short-term or long-term securities, this would support the argument made by the

• A)liquidity premium theory.
• B)expectations theory.
• C)segmented markets theory.
• D)liquidity premium theory AND expectations theory.

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Definitions:

Spot Rate

The ongoing market rate at which a certain currency is available for buying or selling for immediate dispatch.

Unbiased Forward Rate

Theoretically, a forward rate in the currencies market that is equal to the spot rate adjusted for interest rate differentials, without any prediction of future direction.

Forward Rate

The agreed-upon price for a financial transaction that will occur at a future date, often used in the context of foreign exchange or interest rates.

Spot Rate

The current market price of a currency, security, or commodity available for immediate settlement.