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
if u were the professor wht your opinion about vincent mind stage

Drawback of Stock Repurchases 1. High price A company may find it not easy to repurchase shares at their recent value and price paid may be higher to the detriment of rem

Example of Net Present Value Method Cost of investment = 100,000/=, Interest rate = 10percent, Inflows year 1 = 80,000/= Year 2 = 50,000/= NPV   = 80,000 / 1.1 + 5

Factors Affecting Share Prices The entire sorts of influences affect share prices. These influences involves as: 1. The current profit record of the company particularly th

Computation of Weights or Proportions In computation of the weights or proportions of different capital components, the following values might be used like as: Mar

Stock Repurchase The company can buy back also several of its outstanding shares instead of paying cash dividends. This is identified as stock repurchase and or bought back or

Commercial Bank for Short Term Loans Purpose Why Commercial Banks Prefer To Lend Short Term Loans a) Long-term forecasts are not only difficult although also vague as unc

Tests of Term Structure of Interest Rates Theories Various tests have been conducted mainly in USA and they show that all the three (3) theories have some validity and therefo

Question: a) An oil well now produces 75000 barrels per year. The well will produce for 21 years more, but production will decline by 3.7% per year. Oil prices however, will in

Disadvantages of Overdraft Finance A. It is expensive as the interest rates of overdrafts are much higher than bank rates. B. The employ of this finance is an indication of