The segmented markets theory can explain
A)why yield curves usually tend to slope upward.
B)why interest rates on bonds of different maturities tend to move together.
C)why yield curves tend to slope upward when short-term interest rates are low and to be inverted when short-term interest rates are high.
D)why yield curves have been used to forecast business cycles.

Question

Quizplus · Accepted Answer

The segmented markets theory suggests that the market for each maturity of bond is completely separate and distinct. This theory can explain why yield curves usually tend to slope upward, as it posits that the demand and supply for bonds of different maturities are independent, leading to higher interest rates for longer maturities due to increased risk.

The Segmented Markets Theory Can Explain