Which of the following statements about segmented markets theory of term structure is correct?
A) It assumes that lenders always lend for short periods.
B) It assumes that borrowers have particular periods for which they want to borrow.
C) It gives a good explanation of why yield curves usually slope upward.
D) It assumes that all bonds are perfect substitutes for each other.

Question

Quizplus · Accepted Answer

The segmented markets theory assumes that different segments of the market have different supply and demand dynamics, leading to specific interest rates for specific maturities. Therefore, it assumes that borrowers have particular periods for which they want to borrow, thus choosing certain segments of the market to borrow from.

Which of the Following Statements About Segmented Markets Theory of Term