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 liabilities, which means that the firm will be vulnerable to interest rate fluctuations in the short-term market. When the yield curve is upward sloping, short-term interest rates are generally lower than long-term interest rates. Therefore, financing short-term assets with short-term liabilities will result in lower borrowing costs for the firm. However, if the yield curve changes to a downward sloping curve, short-term interest rates are generally higher than long-term interest rates. This means that financing short-term assets with short-term liabilities will result in higher borrowing costs for the firm, and the relative profitability of the firm employing an aggressive current asset financing policy will decrease.

The Relative Profitability of a Firm That Employs an Aggressive