Under the Expectations Theory If Market Participants Expect That Future

question 22

Multiple Choice

Under the expectations theory if market participants expect that future short-term rates will be higher than current short-term rates, the yield curve will

• A)slope upward.
• B)slope downward.
• C)be flat.
• D)slope upward, slope downward, or be flat, depending on risk, liquidity, cost of information, and tax considerations.

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Definitions:

Grace Period

A period after a due date during which a financial obligation may be met without penalty or late fees being incurred.

Credit Cards

Means of access to preapproved lines of credit granted by a bank or finance company.

Debit Cards

Bank cards that allow users to make transactions by deducting money directly from their checking account.