A – This difference may reverse: Correct – the term structure can and does change over time.
B – Currency expected to strengthen long-term: Lower long-term rates imply lower expected long-term inflation, which is consistent with expectations of a stronger currency in the long run.
D – Interest rates are expected to fall: An inverted yield curve usually reflects market expectations that future short-term rates will be lower than today.
C is wrong because rates are not definite to fall, only expected to.
E is wrong: with short-term rates currently higher than long-term, a long-term borrower would not clearly “save” by borrowing short and refinancing; it also adds refinancing risk.
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit