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Financail Markets
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Objectives: Primary To successfully invest $200m of funds into short term securities with the highest possible yield in order to maximise our return on profit. 10% of our funds are required to be invested in the overnight market and 50% should be available over the next 3 months. Secondary To speculate in the market according to interest rate movements over the next 6 months by buying and selling securities in order to achieve maximum profit from interest rate returns. Money Investing Strategy Due to the fact that we expect interest rates to rise in the next 6 months we plan to invest our money in short term securities such as (30, 60 and 90) day bank bills, as well as overnight cash. Investing short term provides us with the opportunity to benefit from any rises in interest rates when the securities are “rolled over” which will increase the yield of our return. In comparison to long term investment where the interest rate will be fixed and we will not be able to receive additional profit from an interest rate increase. It is important that we first investigate the market in order to find the deficit economic units which offer the highest bid so we can obtain the maximum return on investment. While it would be wise to invest most of our money in a corporation or bank which provides the highest bid we should also consider their credit rating in order to minimise the risk of losing our money. We have set a counter party limit of $20m to a corporation or bank with a credit rating below (A but above C) and we plan to increase the limit if the bid or credit rating increases. Similarly we will decrease the limit if the credit rating has decreased as the risk of return has increased. We will also increase our offer to corporations with low credit ratings in order to compensate for the increase in risk. Once we have successfully invested all our money we will attempt to sell the short term bank bills in order to benefit from the increase in interest rates and maximise the return on the investment. Market View Our market view is that the Australian economy will expand from its recent slow down causing interest rates to rise over the next 6 months.
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