CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

According to the liquidity - preference theory the forward rate is:
A. Less than the expected future spot rate.
B. Greater than the expected future spot rate.
C. Equal to the expected future spot rate.
Explanation: This is due to the liquidity premium.

User Contributed Comments 9

User Comment
toly why B?
katybo I think it must compensate for liquidity risk
myanmar katybo - u're right
noonah There is a liquidity premium embedded in the rate on top of the expected future spot rate
olagbami the forward rate is higher than the expected future spot rate because of the maturity premium attached.
group makes perfect sense
vi2009 remium for holding onto the bond
examinee makes perfect sense. that's why i love this site!
dbalakos Because the yield curve is upward sloping in liquidity preference theory
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