Contents

Question for Week 6 Seminar...............................................................................................................1

Q.1 Look at the Chart and Graph below............................................................................................1
Q.2 Optional – Extend Yourself Question..........................................................................................2
Steep yield Curve...........................................................................................................................2
Inverted yield curve.......................................................................................................................2
Flat Yield Curve..............................................................................................................................2

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Question for Week 6 Seminar

Q.1 Look at the Chart and Graph below.

Tenure Curve 1 Curve 2 Curve 3

O/N 0.25 4 2.5
1m 0.25 3 2.5
2m 0.35 2 2.5
3m 0.45 1.5 2.5
6m 0.75 1 2.5
9m 1 0.75 2.5
1y 1.5 0.45 2.5
2y 2 0.35 2.5
3y 3 0.25 2.5

Tenure - Diff erent Curves

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
O/N 1m 2m 3m 6m 9m 1y 2y 3y

Curve 1 Curve 2 Curve 3

1. Blue curve, curve 1 is a steep yield curve.

2. Orange curve, curve 2 is an inverted curve.
3. Grey curve, curve 3 is a flat curve.

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Q.2 Optional – Extend Yourself Question
Steep yield Curve
One of the curves in which the long - term yield is higher and the short - term yield are at normal
level is known as steed yield curve. As in above given graph blue line is steep yield curve and it is at
normal level when 1 month or 2 as on but when it comes for long period 1 year, 2 years so this gone
higher.

Inverted yield curve

An opposite yield curve of the normal yield curve is Inverted yield curve. The other name of inverted
yield curve is abnormal yield curve. If there are shorter maturities of yield are higher in comparison
with longer maturities of yield, the yield curve slopes goes downward and graphs shows inverted.
Inverted graph shows a negative relation. As it is shown by the orange curve in the above given
graph.

Flat Yield Curve

When there is no significant difference in between the yields on long term and short - term debt so
the curve is known as flat curve. For the flat curve there would be two reasons when there is
rescission and another one is when there is expansion. In the above graph grey curve is showing flat
yield curve as there is no significant difference in between the yields.