If liquidity influences the yield curve, the forward rate underestimates the market's expectation of the future interest rate.

Name: If liquidity influences the yield curve, the forward rate underestimates the market's expectation of the future interest rate.
Brand: Quizplus
Rating: 5.0 (32 reviews)

Question

Quizplus · Accepted Answer

The forward rate may either underestimate or overestimate the market's expectation of the future interest rate, as it reflects not only expectations about future interest rates but also premiums for bearing risk, such as liquidity risk.

If Liquidity Influences the Yield Curve, the Forward Rate Underestimates