Business and Personal Finance Dictionary

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• LIQUIDITY PREFERENCE
  
  1. A desire among some holders of financial instruments to keep some or all of their funds in liquid instruments, that is, instruments that either mature in a short period of time or that can be readily sold with small risk of loss. 2. A theory that attempts to explain the shape of yield curves. Under the liquidity preference hypothesis, the shape of yield curves is determined by the collective expectations of investors (the expectations hypothesis and implied forward rates) but with an upward bias at least for short- term rates caused by investors' preferences for liquidity.
  
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