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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Interest Rate Risk
‘Market segmentation theory can explain kinks in the yield curve’
How is this statement correct?
Different types of investors are interest in different segments of the yield curve. For example, different types of investors invest short-term as opposed to those who invest long-term. The shape of the yield curve for each segment reflects the attitudes of the investors in that sector. Where two sectors meet there will often be a ‘kink’ in the yield curve.
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