n NISM Certifications
NSM General NISM
Medium

If the long-term rate is 10% and short-term rate is 8%, the shape of the term structure of rates is ___________.

Practice question from NISM Series IV - Mock Test 2 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Flat

  2. Normal/positive

    Correct answer

  3. C

    Humped

  4. D

    Inverted/negative

Why this is the answer

When long-term rates are higher than short-term rates, the yield curve slopes upward, indicating a normal or positive term structure.

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