Tests of term structure of interest rates theories, Finance Basics

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 therefore the shape of the yield curve of any firm is affected with the following as:

1. Demand and Supply conditions in the long and short term market.

2. Liquidity preferences of borrowers and lenders

3. Expectation of future inflation. While any type of the three (3) factors may lead the market all the three (3) effect the term structure of interest rate.

Factors influencing interest rates

There are four (4) main significant factors that influence interest rates and the shape of yield curve.

1. CBK - Monetary policy

2. Business activity or circle in the economy

3. Balance of trade position

4. The level of government budget deficit

Posted Date: 1/30/2013 3:02:24 AM | Location : United States

Related Discussions:- Tests of term structure of interest rates theories, Assignment Help, Ask Question on Tests of term structure of interest rates theories, Get Answer, Expert's Help, Tests of term structure of interest rates theories Discussions

Write discussion on Tests of term structure of interest rates theories
Your posts are moderated
Related Questions
Taxation Position and Profitability & Liquidity Profitability and liquidity A company's capacity to pay dividend will be determined primarily with its capability to creat

The Beta of several industry sectors is shown below. Industry                                                                                            Beta (β) Banks

John has just inherited $50,000 from his Uncle Ted. John is currently studying his Bachelor of Accounting degree at CQUniversity part-time and has three (3) years of study remainin

Advantages of Development Financial Institutions Advantages or Functions or can say Case for Development Financial Institutions 1. They grant venture capital 2. They gra

Advantages and Disadvantage of Profitability Index Advantages of profitability index a) Simple to understand and utilize. b) The part of NPV in the venture will show t

why prospective buyers need to see accounting information

why borrow from a country with a high interest rate instead of a country with a low interest rate

What are the significant points of Fiscal Policy? Significant points of Fiscal Policy: a. Meaning of fiscal policy and why this is an significant tool into managing economic

Trial and Error Method a) Select any rate of interest on random and employ it to compute NPV of cash inflows. b) If rate selected produces NPV lower than the cost, want a l

CBK - Monetary Policy The money supply in the economy has a main effect on both the rate of inflation and the level of economic activity. The level of money supply is controll