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:

JIT Systems

Just-In-Time inventory management systems designed to increase efficiency and decrease waste by receiving goods only as they are needed in the production process.

Variability

The extent to which data points in a statistical distribution or set differ from each other and from their average.

Engineering Drawings

Technical drawings and specifications for the design, construction, and operation of objects or systems.