According to the segmented markets hypothesis, interest rates are determined by _____________________.
A)supply and demand factors in various separate markets of different terms to maturity.
B)the expectations theory modified by preferred habitats theory.
C)a small segment of the most influential borrowers and lenders in the market.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

The segmented markets hypothesis posits that interest rates are determined by supply and demand factors in various separate markets of different terms to maturity. This means that interest rates for short-term loans will be determined by factors specific to that market, and rates for long-term loans will be determined by factors specific to that market as well. This contrasts with the expectations theory, which sees interest rates as reflecting expectations for future inflation and economic growth, and the preferred habitats theory, which suggests that investors will mainly stick to their preferred maturity segments but may occasionally switch to other segments if they believe they can get a better return on their investment.

According to the Segmented Markets Hypothesis, Interest Rates Are Determined