Question

A yield curve is a graphical representation of the relationship between the yields and the maturities of securities issued by a given borrower in a given currency on a given date. The mathematical relationship between these two variables, the yield and the maturity, is called the term structure of interest rates, and the graphical relationship (plotted curve) is called the yield curve.

A yield curve can exhibit a variety of shapes, and the general shapes have been given a specific name. Identify the name of the yield curve that matches the pattern described as follows:
Description of the Yield Curve Name Given to Describe the Yield Curve
1. Short-term rates are relatively low, intermediate-term rates are much higher, and long-term rates are much lower.
2. Long-term rates are greater than short-term rates.
3. The yield curve exhibits a downward-sloping curve.
4. Normal yield curve Long-term rates are equal to short-term rates.

Answer 1

1. Short-term rates are relatively low, intermediate-term rates are much higher, and long-term rates are much lower. - humped yield curve

2. Long-term rates are greater than short-term rates. - normal yield curve

3. The yield curve exhibits a downward-sloping curve - an inverted yield curve

4. Long-term rates are equal to short-term rates - flat yield curve

Step-by-step explanation:

If long term interest rates are greater than short-term rates, this is an upward sloping demand curve, it is a normal yield curve

If the yield curve exhibits a downward-sloping curve, the short term rates are higher than the long term rates

If the long-term rates are equal to short-term rates, interest rate remains the same in the short and long term, the yield curve is flat