Although most of us may not realize it, the interest rate actually plays an important role in our daily lives due to its large effect on the purchasing power. For example, if the interest rate is higher, people tend to reduce their spending and rather save it in the savings account due to the high interest they can get. However, if the interest rate is lower, they prefer to spend it rather than keep it in the savings account. The reason for this is that ups and downs in interest rates have a significant impact on personal income. Additionally, since interest rates have a major impact on investments, it is important for investors to track the movement of these interest rates before making any decisions. It is important for all people dealing with interest rates to understand the term structure of the interest rate. or also known as the yield curve. It is a graph that reflects the relationship between the maturities and interest rates of a security, as well as the different performance it has achieved at different times. There are three different types of shape created by the interest rate term structure. 1) Normal yield curve: it is a yield curve with an upward slope in which short-term securities have a lower return than long-term securities. As the name suggests, the shape essentially indicates the normal market condition in which investors believe that there will be no significant changes in the economy, i.e. that the economy will develop at a normal pace. It is actually a normal market expectation to offer a higher yield to long-term securities as compensation because they carry greater risk than short-term securities.2) Inverted Yield Curve – It is a yield curve in which long-term securities term have lower yield than... middle of the paper... choosing long-term securities. This is due to their corporate nature which requires long-term securities, such as companies involved in projects that have a long development period. Therefore, the yield curve is generally upward sloping.3. Liquidity premium theory – It is a theory that suggests that the yield of securities in a mature stock has an influence on the return of another security. Investors are willing to invest in long-term securities as long as they receive a liquidity premium as compensation due to their long exposure to long-term risk. Thanks to this compensation investors are more motivated to invest in long-term securities. Thus, creating an upward sloping yield curve. There are many factors that can affect the yield curve which usually depends on the state of the economy. Below are some of the factors that can influence the yield curve.