The relative profitability of a firm that employs an aggressive current asset financing policy will improve if the yield curve changes from upward sloping to downward sloping.

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An aggressive current asset financing policy involves financing short-term assets with short-term debt. When the yield curve is upward sloping, short-term interest rates are lower than long-term interest rates, making short-term borrowing cheaper than long-term borrowing. Therefore, an aggressive current asset financing policy may be more profitable in an upward-sloping yield curve environment. When the yield curve is downward sloping, short-term interest rates are higher than long-term interest rates, making short-term borrowing more expensive than long-term borrowing. Therefore, an aggressive current asset financing policy may be less profitable in a downward-sloping yield curve environment.

The Relative Profitability of a Firm That Employs an Aggressive