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(d) Suppose the term structure of Treasury securities was such that the implied forward one-year rate was appreciably higher than the reciprocal rate implied

 

(d) Suppose the term structure of Treasury securities was such that the implied forward one-year rate was appreciably higher than the reciprocal rate implied by the term structure at present. (i) On the basis of the pure expectations theory of the term structure, briefly discuss two factors that could justify such a decline in the implied forward rate. [10 marks]

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