Question

What would a follower of the market segmentation theory say about the supply and demand for​ long-term loans versus the supply and demand for​ short-term loans given the yield curve in part c​? ​(Select the best answer​ below.) A. Market segmentation theorists would argue that the upward slope is due to the fact that under current economic conditions there is greater demand for​ long-term loans for items such as real estate than for​ short-term loans for seasonal needs. B. Market segmentation theorists would argue that the upward slope is due to the fact that under current economic conditions there is a smaller demand for​ long-term loans for items such as real estate than for​ short-term loans for seasonal needs. C. Market segmentation theorists would argue that the downward slope is due to the fact that under current economic conditions there is greater demand for​ long-term loans for items such as real estate than for​ short-term loans for seasonal needs. D. Market segmentation theorists would argue that the upward slope is due to the fact that under current economic conditions there is greater demand for​ short-term loans for items such as real estate than for​ long-term loans for seasonal needs.

Answer 1

Answer:

Market segmentation theorists would argue that the upward slope is due to the fact that under current economic conditions there is greater demand for​ long-term loans for items such as real estate than for​ short-term loans for seasonal needs.

Correct option A

Explanation:

Market segmentation theory is based on the belief that the market for each segment of bond maturities consists mainly of investors who have a preference for investing in securities with specific durations: short, intermediate, or long-term.

Market segmentation theory asserts that the buyers and sellers who make up the market for short-term securities have different characteristics and motivations than buyers and sellers of intermediate and long-term maturity securities.

Followers of the market segmentation theory would say that the slope upward is evidence that the market has a greater demand for long term loans as opposed to short term loans.

Answer 2

Answer: The answer is A

Explanation:

The market segmentation theory states that there is no relationship whatsoever between the long term interest rate and the short term interest rate in the financial market .In the sense that ,the long term loan or bond are secured from capital market while short term loan can be secured from the money market. As a result of these the interest rate of one does not have effect on the other one. Another fact of the issue is that the investors in the market are not the same.

The yield curve is a line which shows the relationship between interest rate on a loan or bond and the time for such loan or bond to reach their maturity. Therefore, the upward slope is due to the fact that under current economic conditions there is a greater demand for long term loans for such items such as real estate than for short term loans for seasonal needs.