GARP 2016-FRR Exam - Topic 2 Question 16 Discussion

Actual exam question for GARP's 2016-FRR exam

Question #: 16
Topic #: 2

[All 2016-FRR Questions]

What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

AThe long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

BThe long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.

CThe short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

DThe short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.

Show Suggested Answer

Suggested Answer: B

by Alaine at Mar 03, 2026, 07:34 AM

Limited Time Offer

25%

Off

Get Premium 2016-FRR Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Altha

15 days ago

Wait, are we sure about this? Seems a bit off to me.

upvoted 0 times

...

Elvis

20 days ago

Totally agree, it makes sense for lenders to want higher returns on long-term loans.

upvoted 0 times

...

Shizue

26 days ago

A) is the right choice!

upvoted 0 times

...

Inocencia

1 month ago

I thought it was all about risk, not just rates!

upvoted 0 times

...

Flo

1 month ago

B) sounds plausible too, but I lean towards A).

upvoted 0 times

...

Corrina

1 month ago

Wait, are we sure about that? Seems a bit off to me.

upvoted 0 times

...

Kathrine

2 months ago

Totally agree, it makes sense for lenders to want higher returns on long-term loans.

upvoted 0 times

...

Barney

2 months ago

A) is the right choice!

upvoted 0 times

...

Zack

2 months ago

I feel like option A makes the most sense, but I’m a bit confused about how it ties into the overall demand for liquidity.

upvoted 0 times

...

Arleen

2 months ago

I practiced a similar question where it was about how borrowers choose between short and long-term loans. I think it was about lenders needing higher returns for longer commitments.

upvoted 0 times

...

Lino

2 months ago

I think it has something to do with long-term rates needing to be higher to attract lenders, but I'm not sure which option that aligns with.

upvoted 0 times

...

Galen

2 months ago

I remember liquidity preference theory suggests that investors prefer short-term securities due to lower risk, which might explain the upward slope.

upvoted 0 times

...