Question

Which of the following is true of the market segmentation theory? a. According to the market segmentation theory, the yield curve can only be flat at any given time. b. According to the market segmentation theory, lenders prefer to make short-term loans rather than long-term loans. c. According to the market segmentation theory, the slope of the yield curve depends on supply/demand conditions of a security in the long- and short-term markets. d. According to the market segmentation theory, the shape of the yield curve depends on investors' expectations about future inflation rates. e. According to the market segmentation theory, the yield curve can only be upward sloping at any given time.

Answer 1

c. According to the market segmentation theory, the slope of the yield curve depends on supply/demand conditions of a security in the long- and short-term markets.

Step-by-step explanation:

According to market segmentation theory the long term loan rate and short term loan rates are not related to each other in any manner, as depends on different needs of different individuals for the same.

Accordingly the yield curve for the same depends on the market conditions of each loan respectively on the supply and demand for the loans.

The short term and long term markets are completely different.

These depend upon the availability of securities in each market separately.

Thus, statement C is correct.