Go to http://www.stockcharts.com/charts/YieldCurve.htm and click on the animated yield-curve graph (be sure JAVA is enabled on your browser). Answer the following questions:
a. Is the yield curve typically upward sloping, downward sloping, or flat?
b. Notice the behavior of the yield curve and the S&P 500 between July 28, 1998, and October 19, 1998. In August 1998, Russia defaulted on billions of dollars of foreign debt. Then, in late September came the news that at the behest of the Federal Reserve, 15 financial institutions would infuse $3.5 billion in new capital into hedge fund Long-Term Capital Management, which had lost nearly $2 billion in the previous month. Comment on these events as they related to movements in the yield curve and the S&P 500 that you see in the animation.