Case Scenario:
You are a financial analyst for the CMC Corporation. This corporation predicts changes in the economy, such as interest rates, retail trends, and unemployment. Your job is to educate incoming analyst on the terminology, definitions, and uses of interest rate theories, yield curves, and predictions. In your next training session, you will cover major theories that have been developed to explain resulting yield curves and the term structure of interest rates. Prepare a training guide with the following:
Q1. Define and compare the following theories: expectations theory, liquidity theory, market segmentation theory, and preferred habitat hypothesis theory.
Q2. Explain in detail how each of the above theories explain changes in the economy.
Q3. Provide examples for each.