When the yield curve is upward sloping?
Analysts look to the slope of the yield curve for clues about how future short-term interest rates will trend. When there is an upward sloping yield curve, this typically indicates an expectation across financial markets of higher interest rates in the future; a downward sloping yield curve predicts lower rates.
Which of the following can compensate for risk exposure due to heavy short-term borrowing?
Heavy risk exposure due to short-term borrowing can be compensated for by carrying illiquid assets.
When the yield curve is upward sloping then quizlet?
If real interest rates are constant, then an upward sloping yield curve means higher inflation is expected. 3. An upward sloping yield curve provides a signal that a recession is likely.
What is upward sloping demand curve?
People sometimes talk about upward-sloping demand curves occurring as a result of conspicuous consumption. Specifically, the high prices increase the status of a good and make people demand more of it.
Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?
The correct option is d. Liquid assets and heavy long-term borrowing.
Why does long term financing generally cost more than short term financing?
Length of Financing Another potential pitfall of long term versus short term financing is that while short term interest rates will be higher than long term (as offered by most banks), more interest overall is paid on long term loans since the loan repayment term is longer.
When the yield curve is inverted the yield curve is quizlet?
What is an inverted yield curve? An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession.
When the yield curve is inverted the yield curve is?
An inverted yield curve describes the unusual drop of yields on longer-term debt below yields on short-term debt of the same credit quality. Sometimes referred to as a negative yield curve, the inverted curve has proven in the past to be a relatively reliable lead indicator of a recession.
What is an upward slope called?
ACCLIVITY. an upward slope or grade (as in a road); "the car couldn't make it up the rise"
Which of the following types of assets should be financed with long term financing?
Answer C. Fixed assets and permanent current assets.
Which of the following is generally considered to be the least liquid of current assets quizlet?
Which of the following is generally considered to be the least liquid of current assets? ordering costs. costs are minimized when total carrying costs and total ordering costs are equal.
What’s the difference between short term financing and long term financing?
The primary difference between long-term and short-term financing is in the length of time the debt obligation remains outstanding. Short-term financing involves a loan term that is typically less than one year. Conversely, long-term financing is any debt obligation with a loan term that is greater than one year.
Which is better short term or long term financing?
Short-term vs long-term business financing amounts Short-term business financing options are for smaller amounts while long-term financing options are for larger amounts. Because short-term financing is for smaller amounts, you pay them back more quickly at a higher interest rate and there's a shorter approval process.
What does it mean for risk when the yield curve is inverted?
A yield curve illustrates the interest rates on bonds of increasing maturities. An inverted yield curve occurs when short-term debt instruments carry higher yields than long-term instruments of the same credit risk profile.
What happens to yield curve when interest rates rise?
Interest rates and bond prices have an inverse relationship in which prices decrease when interest rates increase, and vice versa. Therefore, when interest rates change, the yield curve will shift, representing a risk, known as the yield curve risk, to a bond investor.
What is a positive slope in economics?
The concept of slope is very useful in economics, because it measures the relationship between two variables. A positive slope means that two variables are positively related—that is, when x increases, so does y, and when x decreases, y decreases also.
What does slope mean in economics?
Slope measures the rate of change in the dependent variable as the independent variable changes. Mathematicians and economists often use the Greek capital letter D or D as the symbol for change. Slope shows the change in y or the change on the vertical axis versus the change in x or the change on the horizontal axis.
Which of the following is the goal of financial management?
to maximize shareholder wealth The goal of financial management is to maximize shareholder wealth. For public companies this is the stock price, and for private companies this is the market value of the owners' equity.
What is that part of current assets called which is financed through long term sources of funds?
The long term source of finance provides support for a small part of current assets requirements which is called the working capital margin.
Which of the following places the assets in order of liquidity from most liquid to least liquid?
The assets are listed on the balance sheet in order of liquidity the most liquid—cash—is at the top, and the least liquid—fixed assets—are at the bottom.
Which of these assets would be considered the most liquid according to financial analysts?
Cash on hand is considered the most liquid type of liquid asset since it is cash itself.
Why do firms need short term financing and long term financing?
The Differences Between Long-Term and Short-Term Financing Short-term financing is usually aligned with a company's operational needs. It provides shorter maturities (3-5 years) than long-term financing, which makes it better-suited for fluctuations in working capital and other ongoing operational expenses.
What is short term financing in financial management?
Short term finance refers to financing needs for a small period normally less than a year. In businesses, it is also known as working capital financing. This type of financing is normally needed because of uneven flow of cash into the business, the seasonal pattern of business, etc.
What is the meaning of financial management?
Financial management is strategic planning, organising, directing, and controlling of financial undertakings in an organisation or an institute. It also includes applying management principles to the financial assets of an organisation, while also playing an important part in fiscal management.
How many approaches are there in financial management?
The approaches are: 1. Traditional View 2. Modern View 3. Liquidity and Profitability.
What does a high yield curve mean?
Steepening Yield Curve A steepening curve typically indicates stronger economic activity and rising inflation expectations, and thus, higher interest rates. When the yield curve is steep, banks are able to borrow money at lower interest rates and lend at higher interest rates.
What does a positive yield curve mean?
Positive-yield-curve definition An upward sloping yield curve that is characterized by interest rates that are higher on long-term debt than on short-term debt. This is the normal situation, because investors have to be compensated more for taking on the greater risk of tying their funds up for a longer period of time.
What is the yield curve in finance?
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
What does a higher slope value mean?
A higher positive slope means a steeper upward tilt to the line, while a smaller positive slope means a flatter upward tilt to the line. A negative slope that is larger in absolute value (that is, more negative) means a steeper downward tilt to the line. A slope of zero is a horizontal flat line.
What is positive sloping curve?
A positive slope means that two variables are positively related—that is, when x increases, so does y, and when x decreases, y also decreases. Graphically, a positive slope means that as a line on the line graph moves from left to right, the line rises.