Market segmentation theory, Finance Basics

Market Segmentation Theory

This theory states as the main investors lenders and borrowers are confined to a particular segment of the market and will not change even whether the forecast of the likely future interest rates changes.

The thrust of market segmentation theory is that the slope of yield curve depends on supply mechanism and demand. An upward sloping curve would happen if there was a large supply of funds relative to demand in the short term marketing although a relative shortage of funds in the long-term market would produce an upward sloping curve.

The lenders and borrower hence have a preferred maturity like a person borrowing to buy a house or a company borrowing to build a power plant would want a long term loan.  Although to build up stock a retailer borrowing in readiness for a peak reason would prefer for a short term loan. Related differences exist between savers like a person saving to pay school fees for next semester would want to lend upon in the short-term market.  For retirement a person saving 20 years ahead would perhaps buy long-term security in L.T. market.

Posted Date: 1/30/2013 3:00:18 AM | Location : United States







Related Discussions:- Market segmentation theory, Assignment Help, Ask Question on Market segmentation theory, Get Answer, Expert's Help, Market segmentation theory Discussions

Write discussion on Market segmentation theory
Your posts are moderated
Related Questions
ROS - Return on Sales (Profit Margin) The Average of the industry ROS was 5.18% for 2004, 4.41% for 2005, and 7.20% for 2006. The chart showed that ROS has been declined f

(a) State the most appropriate drivers for the following direct expenses: (i) New business administration department's salary costs (ii) Medical examinations for temporary life

Paper on Estate Planning (3–5 pages) Evaluate the tools commonly used in estate planning, including trusts, life insurance, and annuities. Compare the tools as to how they would a

Explain about the monetary role of banks. The Monetary Role of Banks: • A bank is a financial intermediary. • Bank reserves are the currency banks hold within their va

How is the channelling of funds from savers to spenders very important? The channelling of funds by savers to spenders is very significant for two purposes: • One, lender-sa

A firm has a $100 million capital budget. It is considering two project, each costing $100 million. Project A has an IRR of 20%; has an NPV of $9 million; and will be terminated af

Maghrabi Enclosure follows a moderate current asset investment policy, but it is considering whether to shift to a different strategy. The firm''s annual sales are $500,000; its f

Elephant Company common stock has a beta of 1.2. The risk-free rate is 6% and the expected market rate of return is 12%. Determine the required rate of return on the security.

Consider an economy with three dates {t=0, 1, 2}. A firm has assets in place that generate an output (profit) of either 40 in state L or 160 in state H at t=2. Bothe states equally

Sole Proprietorship Definition - A sole proprietorship or sole tradership is the oldest and simplest form of business. It is that type of business organization where one person