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Please explain why long-term rates are usually higher than short-term rates Please explain under what economic conditions...

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Finance

Please explain why long-term rates are usually higher thanshort-term rates

Please explain under what economic conditions long-term ratesmight not be higher than short-term rates.

Please use "the yield curve" in your answer andPlease explain your answer "in detail"

Answer & Explanation Solved by verified expert
4.1 Ratings (506 Votes)
Longterm rates are usually higher than shortterm rates because of time risk or maturity risk Longterm lending involves more risk to the lender as their investment is locked up for a longer time Higher risk always demands higher returns Hence lenders demand higher yields    See Answer
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