Question

When investors tend to increase their investments in debt securities on the short end of the spectrum, it generally leads to:

a) Higher interest rates

b) Lower interest rates

c) No impact on interest rates

d) Fluctuating interest rates

Answer 1

When investors increase their investments in short-term debt securities, it generally leads to lower interest rates.

Step-by-step explanation:

When investors tend to increase their investments in debt securities on the short end of the spectrum, it generally leads to lower interest rates.

When the demand for debt securities increases, it causes the prices of these securities to rise. As a result, the yields on these securities decrease, leading to lower interest rates.

For example, if there is a surge in investor demand for short-term Treasury bills, the prices of these bills will increase, causing their yields to fall. This decrease in yields translates to lower interest rates in the short-term debt market.