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Market Segmentation Theory
This theory states as the main investors lenders and borrowers are confined to a particular segment of the market and will not change even whether the forecast of the likely future interest rates changes.
The thrust of market segmentation theory is that the slope of yield curve depends on supply mechanism and demand. An upward sloping curve would happen if there was a large supply of funds relative to demand in the short term marketing although a relative shortage of funds in the long-term market would produce an upward sloping curve.
The lenders and borrower hence have a preferred maturity like a person borrowing to buy a house or a company borrowing to build a power plant would want a long term loan. Although to build up stock a retailer borrowing in readiness for a peak reason would prefer for a short term loan. Related differences exist between savers like a person saving to pay school fees for next semester would want to lend upon in the short-term market. For retirement a person saving 20 years ahead would perhaps buy long-term security in L.T. market.
Spot transaction hedge/Money market hedge There are three parts to this question. Please answer all parts. The Chicken Company, a company with headquarters in Switzerland, has a r
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Setting of Optimal Cash Balance Cash is often identified like a non-earning asset since holding cash quite than a revenue-generating asset includes a cost in form of foregone
Interpolation method Consequently, r denotes required rate of return Consequently, r = 14 percent + (15 percent - 14 percent) x 253 .646 /253 .646 + 5.375
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Advantages of Central Depository System or CDS 1. It shortens the registration procedure in the stock exchange that is high speed of registering shareholders. 2. It improve
• Company X has $100,000 face value of outstanding bonds consisting of 100 $1,000 face value bonds with a 4% annual coupon and 20 years remaining until maturity. The bonds are cur
Stone Container is a major producer of cardboard boxes. Stone Container has $10M in outstanding equity. In addition, it has $2M in outstanding debt. The debt is a ten-yearmortgage
discuss the three approaches to the short -term financing problem and provide relevant examples of each.
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