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yield curve

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › yield curve

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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    Posts
  • October 28, 2023 at 2:47 pm #694107
    krrish2005
    Participant
    • Topics: 138
    • Replies: 229
    • ☆☆☆

    In relation to the yield curve, which of the following statements is correct?
    A Expectations theory suggests that deferred consumption requires increased
    compensation as maturity increases
    B An inverted yield curve can be caused by government action to increase its
    long?term borrowing
    C A kink (discontinuity) in the normal yield curve can be due to differing yields in
    different market segments
    D Basis risk can cause the corporate yield curve to rise more steeply than than govt. yield curve
    Sir i dont understand why the answer cannot be B
    i asked it in fm forum but i just need some higher knowledge based on afm syllabus
    my porblem is:
    if government increases its long term borrowing, the demand for long term borrowing will increase in the market, which will drive its market value up and hence will lead to fall in yield curve and will give inverted yield curve, then why it cannot be B

    October 28, 2023 at 5:02 pm #694111
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    If demand for borrowing increases then they will have to offer higher interest rates. An inverted yield curve is where the interest rate falls the longer the term.

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