Answer:
c. The maturity risk premium is zero.
Explanation:
Pure expectation theory states that the forward rate will represent expected future rate. Term structure is said to be a reflection of what the market expects future short term rates to be.
As future rates are expected to be the same as spot rates for that date, the theory is only applicable when there is no risk premium. That is the maturity risk premium is zero.
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The Federal use of open market operations affects banks' money available to lend.
The Federal Reserve uses open market operations as a way to control the money that the banks will operate with. When the reserve needs to be increased the Federal Reserve buys more instruments, and they sell them in order to decrease it.
