If the yield curve is upward sloping,then short-term debt will be cheaper than long-term debt.Thus,if a firm's CFO expects the yield curve to continue to have an upward slope,this would tend to cause the current ratio to be relatively low,other things held constant.

Question

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If short-term debt is cheaper than long-term debt due to an upward slope in the yield curve, a CFO may choose to take on more short-term debt to maintain a low cost of financing. This would lead to a low current ratio, as current liabilities (which include short-term debt) would be relatively high compared to current assets.

If the Yield Curve Is Upward Sloping,then Short-Term Debt Will