Explain about the liquidity premium theory of interest rates, Financial Management

Assignment Help:

Explain about the liquidity premium theory of the term structure of interest rates.

Liquidity premium theory:

Liquidity premium theory asserts which, into a world of uncertainty, lenders and investors will want to hold assets that can be converted in cash rapidly. Thus they will demand a liquidity premium for holding long term debt. On the other hand, similarly dislike for uncertainty causes borrowers (for illustration, firms and governments) to favour to borrow for a longer period at a rate that is certain recently – thus they will be willing to pay a liquidity premium and, hence, a higher rate of interest onto their longer-term debt. It means that the yield curve will usually be upward sloping, while the absence of any other affects. In reality, we require to consider the combined effect of expectations together along with liquidity inclination. A downward sloping yield curve will happen when expectations of an interest rate fall are adequate to offset the liquidity premium.


Related Discussions:- Explain about the liquidity premium theory of interest rates

Enumerate about the turnkey operations, Enumerate about the Turnkey operati...

Enumerate about the Turnkey operations An illustration of a turnkey business would be a franchise for example immediate brand, systems and product with exclusive territory. A t

Show the analysis of credit information, Q. Show the Analysis of Credit Inf...

Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t

Example on modigliani and miller approach, Q. Example On modigliani and mil...

Q. Example On modigliani and miller approach? The subsequent is the data regarding two companies X and Y belonging to the same risk class: Company X

Accounting pricniple, The salaries paid in 2004 is Rs.500000; salaries outs...

The salaries paid in 2004 is Rs.500000; salaries outstanding Rs.20000; salaries paid in advance for 2001 is Rs.30000. What is the actual salary expenditure for 2004?

Corporate governance features, Corporate Governance features Corporat...

Corporate Governance features Corporate compliance: The BOD should make sure that corporation obeys with all related laws, governance practices, regulations, accounting an

Definition of financial leverage, Q. Definition of financial leverage? ...

Q. Definition of financial leverage? One of the goals of planning an appropriate capital structure is to maximize the return on equity shareholders fund or else maximize the ea

Stock on tap, Stock on Tap: Most of the players who invest in these sec...

Stock on Tap: Most of the players who invest in these securities are institutions and hence the volumes are high. Considering that these securities are the first choice for ban

Describe the concept of block of assets, Describe the Concept of Block of A...

Describe the Concept of Block of Assets? (a) Comment on the techniques of Risk Analysis commonly employed in Capital Budgeting. (b) Define clearly the concept of block of as

Relevant and irrelevant cost, The first involved the creation of spreadshee...

The first involved the creation of spreadsheets to resolve some problems for an organization. You will need to model the problem roughly before you start to spreadsheet and you wil

Basic methods of risk management, Q. Basic Methods of Risk Management? ...

Q. Basic Methods of Risk Management? Risk is inherent in business and hence there is no escape from the risk for a businessman. However, he may face this problem with greater c

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd