Final-10.pdf - Chapter 6 The Term Structure Risk Structure...

This preview shows page 1 - 3 out of 13 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Personal Financial Planning
The document you are viewing contains questions related to this textbook.
Chapter 9 / Exercise 9-14
Personal Financial Planning
Billingsley/Gitman
Expert Verified
Chapter 6 The Term Structure & Risk Structure Of Interest Rates It is the relationship at any given times between the length of time to maturity and the yield on a debt securityThe yield curvegraphically depicts the term structure of interest rates. The shape of yield curve 1. Flat yield curve 2. Ascending (Upward sloping) yield curve 3. Descending (Downward sloping, inverted) yield curve 4. Humped yield curve 4 Theories Of Term Structure 1.Pure Expectations Theory
2.Liquidity Premium Theory
3.Segmented Markets Theory
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Personal Financial Planning
The document you are viewing contains questions related to this textbook.
Chapter 9 / Exercise 9-14
Personal Financial Planning
Billingsley/Gitman
Expert Verified
Securities of different maturities are very poor substitutes for one another. Lenders and borrowers have strong preferences on particular maturities. Interest rates depend on supply and demand in each market. 4.Preferred Habitat Theory This hybrid theory combines elements of the other three. Borrower & lenders do hold strong preferences for particular maturities. The yield curve will not conform strictly to the predictions of the other three theories. The Risk Structure of Interest Rates A security issuer defaults if it fails to meet the terms of the contractual agreement in full. Embedded in the yield of risky securities is a premium to compensate lenders for default risk. Risk Premium: Additional yield contained in financial instruments to compensate lenders for default risk. Chapter 8 The Foreign Exchange Market Is the market in which parties exchange national currencies. It is not a public outcry auction market, but rather operates as a computer driven over-the-counter market. The volume of activity has escalated dramatically in response to the growth in world trade volume in goods & services. International capital flows. The acquisition of financial & real assets across national borders. 90% of foreign exchange volume is associated with capital flows Participants in Foreign Exchange Market The direct or immediate participants(Dealers)-commercial banks with international deposits & foreign branches. The ultimate participants-import & export firms, tourists & other travelers, & financial entities seeking to invest internationally. Fixed & Floating Exchange Rates

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture