Consider the Expectations Theory of the Term Structure of Interest

question 19

Multiple Choice

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward-sloping, this indicates that investors expect short-term interest rates to ________ in the future.

• A) increase
• B) decrease
• C) not change
• D) change in an unpredictable manner

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Definitions:

Option Contract

A contract which grants the holder the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date.

Counteroffer

A counteroffer is a response to an original offer, modifying some of its terms and thereby rejecting the original offer.

Acceptance

An agreement by one party to the terms of the offer made by another.

Revocation

The action of rescinding or recalling a decision, law, license, or agreement, making it no longer valid.