Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in production. Does this mean that the firm should consider borrowing only at short-term rates?.

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19-09-2022
Business

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Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in production. Does this mean that the firm should consider borrowing only at short-term rates?.

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Asmasaadatkhan Asmasaadatkhan · Answer 1 · 2022-09-23T16:11:07-04:00

No, the company must take into consideration the volatility of short-term rates.

An important indicator of the direction of future short-term interest rates is the yield curve's slope; a curve that slopes upward typically suggests that the financial markets anticipate higher rates in the future, while a curve that slopes downward typically reflects lower expectations.

The rates at which short-term loans are made between financial institutions or the rates at which short-term government paper is issued or traded on the market are known as short-term interest rates. The average daily rates expressed as a percentage, make up most short-term interest rates.

To learn more about short-term rates

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