The term structure of interest rates will influence the ratio of long-term financing to short-term financing used at any given time.

Question

Quizplus · Accepted Answer

The term structure of interest rates refers to the relationship between the interest rates and the time to maturity of debt securities. If long-term interest rates are lower than short-term interest rates, it may make sense to borrow for a longer period to save on interest costs. Conversely, if short-term rates are lower, short-term financing may be more attractive. This can impact the ratio of long-term financing to short-term financing used by businesses and individuals. Therefore, the statement is true.

The Term Structure of Interest Rates Will Influence the Ratio