Expectations Theory

1- Expectations Theory

Expectations theory depicts that forward rates in present long term bonds have been

closely associated to expectation of bond market of upcoming short term interest

rates. Expectations theory attempts for explaining term structure about interest rates.

Expectations theories have been predicated on concept that the investors feel forward rates,

like reflected (as well as few might say predicted) through upcoming contracts have been

indicative about future short term interest rates. 

As per expectations theory, increasing yield curve happens if economy has been

strong as well as interest rates have been expected to increase in future.  Strong economic

growth would tend towards pulling up interest rates like customers borrow more money for

the cars, the houses and many more and businesses borrow more money for finance

expansion about inventories, new buildings and many more.

2- The Segmented Market

The market, which has been isolated from rest of the markets is often been segmented

by government intervention; for instance, the government may erect the tariff barriers. But,

segmented market may happen due to distance, lesser present information and rest of the

inefficiencies. Segmented market avoids free flow of the labor along with capital. Economists

dispute extent when any to that segmented markets have been harmful, if most agree that

excessive segmentation has not been desirable.

 Market segmentation has been the marketing aspect that divides total market set up in

small subsets comprising of customer having same taste, demand along with preference.

Market segment has been smaller unit in between the bigger market consisting of like minded

individuals. Single market segment has aggregately been different from rest of the segment.

Market segment is consisting of individuals who feel on similar lines along with having same

interests. Individuals from similar segment respond within the same manner to fluctuations

within market.