Most investors prefer their money to be in cash than in less fungible investments. Cash is on hand to be spent immediately if the need arises, but some investments require time or effort to transfer into spendable form. This is known as liquidity preference. A 10-year loan, for instance, is very liquid compared to a 1-year loan. A 10-year US Treasury bond, however, is liquid because it can easily be sold on the market.
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Home » Principles of Finance » Financial Markets and Institutions » Determinants of Interest Rates » Market interest rates
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