Week 5 DQ2....docx - Wk5 DQ2 Discussion Question 2 – CLO...

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Wk5 DQ2 Discussion Question 2 – CLO 1 The cost of long-term borrowing is usually higher than the cost of short-term borrowing. The graph that shows the relationship between maturity and interest rates for U.S. Government’s borrowings (Treasuries) is called “term structure of the interest rates” or “the yield curve”. Shape of the yield curve is often used by economists to forecast future status of the economy 1. Discuss why long-term rates are usually higher than short-term rates (upward yield curve) 2. Discuss under what economic conditions long-term rates might not be higher than shortterm rates (flat or inverted yield curve). 3. Go to , brows various links on the site, find the yield curve for the day of your search, and 4. Interpret your observation of the yield curve. Provide your explanations and definitions in detail and be precise. Comment on your findings. Provide references for content when necessary. Provide your work in detail and explain in your own words. Support your statements with peer-reviewed in-text citation(s) and reference(s). The term structure of interest rates also called yield curve which describes the relationship between market interest rates and short and long term securities. It can also be regarded as the difference in yield on fixed income securities because of the difference in the maturity of the instruments. The yield curve is a very important as it plays crucial role in financial institutions and monetary policy. The principal theory developed to know the term structure of interest rates is the Expectations theory which mentions that long-term interest rates are determined by the existing level and the expected route of short-term interest rates ( Ojong et al., 2015). In fact, yield curve is a graph which shows relationship between maturity of bonds and interest rate. The
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