Term Structure Finance and the Political Environment (Essay Sample)

Introduction:
Term Structure Finance is a very complex field. Borrowers and lenders have to continuously monitor the shape of the long-term and short-term yield curve to determine the rate for their investment that would maximize the return, and earning. Upward sloping yield is an indicator for the lenders to lend in long-run. Similarly, it is a signal for the borrowers to buy in the short term. On the other hand, a downward sloping yield curve is a signal for the lender to lock their investment right now at fixed rates. The borrowers however will try to negotiate for the variable rate as they can see the rates falling in the future. Finance and Trade Finance have become more complex as a result of the introduction of the yield curves. The investors and borrowers these days have become more knowledgeable than ever before, and as a result, it has become really difficult to achieve an equilibrium rate (Chauhdary, 2004).
Yield curves are cyclical. They are impacted by the business conditions, and the political environment of a country. Global politics also play a huge role on the shape of a yield curve. Many investors take into account both the factors when deciding or delaying their investment decision on the basis of spot and forward yield curves. However, yield curves are greatly impacted by the political climate. This paper will cover how the elections in the United States impacted the shape of the yield curve. They are susceptible and sensitive to the changes in the political environment.
Similarly BREXIT was another event that has a huge role to play on the shape of the yield curve in the United Kingdom,...