Forward rates exclusively represent the expected future rates according to the:
A) Market segmentation theory.
B) Pure expectations theory.
C) The liquidity theory.
D) The preferred habitat theory.
E) None of the above.

Question

Quizplus · Accepted Answer

The Pure Expectations Theory posits that forward rates exclusively represent the market's expectations for future interest rates. This theory suggests that the shape of the yield curve reflects the market's expectations of future interest rates, rather than liquidity premiums or institutional factors.

Forward Rates Exclusively Represent the Expected Future Rates According to The