Risk of default is the next criterion of differentiation between securities. It is obvious that securities do differ according to the confidence attached to the fulfilment of their promises and that such differences can and do account for differences in their yields. The problem is, in what order does this risk range the different types of securities? Since all securities promise the future payment of money sums, money itself must occupy the first place as the completely riskless security. Gilt-edged securities come next. Their 'nearness' to money seems to he the most satisfactory explanation of the great stability of the gilt-edged rate: we have seen on page :w that it is the yield of the closest substitutes to money which is least affected by changes in the quantity of money and in the level of employment. We have not yet explained, however, the relatively high level of the gilt-edged rate. One reason must be liquidity preference, another, perhaps equally important one, seems to be the high transaction costs (brokerage charges, stamp duties, commissions, etc.) on long-term securities. Assuming a certain stability in the frequency of transactions, this would be an element in long-term rates which is independent of tastes and relative quantities.