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:

Coracoid Process

A small hook-like structure on the lateral edge of the superior anterior portion of the scapula.

Scapula

A flat, triangular-shaped bone located in the upper back that connects the humerus (upper arm bone) with the clavicle (collarbone).

Intervertebral Disk

A layer of cartilage separating adjacent vertebrae in the spine, functioning as a shock absorber and allowing flexibility and movement.

Thoracic Region

The portion of the body's trunk located between the neck and the abdomen, housing the chest organs including the heart and lungs.