One of Che most important determinants of Che long-tern charter rate in the long run is Che short-tern race at the point of the transaction. The reason for this is chat the short-tern race incorporates in it certain fundamental structural relationships between supply and demand that arc valid over rime, and arc reflected in the operations of the tankship markets. With the exception of a snail percentage of tanker capacity that is used for marginal trades, such as grain, vegetable oils and molasses, the demand for tonnage on spot is the difference between the total demand for independent tonnage and the tier*-charter demand. The sane can be said of the supply aide of the market. This circularity is necessarily reflected In the races.<br><br>As a result, with the exception of the uncertainty premiums that we will shortly explain, at any no rant of tine, spot and the long-term rates arc interdependent.<br><br>In using the short-term race in a nodel for time-charter races in the long run, we oust therefore divorce the forcer from any short-run fluctuations that do not reflect basic structural relationships which arc valid over tine. Otherwise, the long-term rate that we will be determining will be a long-tern race in the short run. Consequently the model that we will propose will include only "normal" short-term rates.<br><br>The model to be tested from 1970 to 1980 is of the form R function (R , X , X , X , X., X ,E), where R. is the long-term rate, R is the shortterm rate, X.s are certain risk premiums and E randon error, all functions of time.