23 Expectation Theory

This video explores the term structure of interest rates, which visually represents spot rates against maturities. We'll examine the common shapes of this term structure, including upward sloping, flat, and downward sloping curves, and discuss that its form is dictated by market realities. The primary focus is on the expectation hypothesis, which posits that forward rates are unbiased predictors of future spot rates. This means that, on average, forward rates accurately forecast where spot rates will be in the future, implying that investing in short-term or long-term instruments should yield the same results. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.