When yield curves are flat,

A. long-term interest rates are above short-term interest rates.

B. medium-term interest rates are above both short-erm and long-term interest rates.

C. short-term interest rates are above long-term interest rates.

D. short-term interest rates are about the same as long-term interest rates.

Question

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Pace

8 March, 01:53

When yield curves are flat,

A. long-term interest rates are above short-term interest rates.

B. medium-term interest rates are above both short-erm and long-term interest rates.

C. short-term interest rates are above long-term interest rates.

D. short-term interest rates are about the same as long-term interest rates.

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Answers (1)

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Ean Fisher · Answer 1

Answer: Option (D) is correct.

Explanation:

Flat yield curves refers to the yield curve in which there is a minor difference between the short term interest rates and the long term interest rates for the instrument which and for the same credit quality.

Normal yield curve is positively sloped as compared to the flat yield curve.

The reason behind the flat yield curve may be the long term interest rate falls more than the short term interest rate or we can say that short term interest rate increases more than the long term interest rate.