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The Range of Interest-Bearing Securities Available on Major Money Markets

Discuss about the Interest Bearing Securities.

Interest bearing securities can be defined as any security investment that can earn interest such as certificate of deposit, bond or money market fund. These investment are majorly used for the purpose of securing financial gain in the market. This article evaluates the definition of interest bearing security and range at which these investments are made available on the major money markets. The features of these investments are also clearly defined in this article and some of the risks that may be associated with such investments are defined (Bamberg 2013). These investments have their use in the modern economy market and this article has provided a detailed analysis on how to overcome some of the challenges that may be associated with these investments. This article has also provided some of the recommendations that one should adopt in order to oversee the challenges that may be associated with developing an interest-bearing security.

There is a wide range of interest bearing securities available in the major money market today. These interest bearing security may from government stock, which usually offers the highest security. The Local Authority Stock, the capitol notes, debentures and term deposits are some of the interest bearing securities (Bernanke 2004). Investors should therefore be careful when considering their investments in the interest bearing security before they commit their hard earned cash to these investments. Investor need to note that the greater the return the greater the risks hence he/she should first ensure that the worth of their investment are trusted and that they are able trace for the refund in case of any loss or damage that may occur during or even before committing their cash on the investments. Below are some of the considerations that the investor need to consider before they commit their cash in the market. Interest rate need to be a key consideration here, as it will determine the outcome of the return.  The range in the market also need to be determined by the security that is offered and assured to the investor. This will definitely boost the morale of the investor, as he/she is able to cater and trace for any loss that may arise in the investments (Buiter 2014). Below is a diagram that shows some of the ranges of interest bearing securities and how they are applicable in the modern economy of today? 

Features of Interest Bearing Securities

Interest bearing securities have various features depending on the type of the investment; however, there are common features that are associated with most of interest bearing securities. Below are some of the common features that is attributed to most of them:

Set maturity dates: most interest bearing securities like bonds have a set maturity date ranging on different timelines such as 1-30 and short-term bonds which matures after a period of three years.

Interest payments: a good number of interest bearing securities gives some form of interest payments (Dolvin, Jordan and Miller 2012). On the other hand, it depends on how their structures such as the fixed rate bond which are paid on a regular pattern

Principal investment repayment: here the interest bearing securities issuers are tasked to repay the whole of the principal like a bond when it reaches maturity.

Credit rating:  one can determine the default risk, which the issuers cannot be able to give an interest or the principal payments of a bond by checking the rating that it has been given.

Many other features that describe the interest bearing security depending one type the investment it is. 

Interest bearing securities have great and varied roles in all sectors including the corporate sector. As the name suggests, interest bearing securities bears interests on the different business sets. In interest bearing securities, risk is a factor that is a greater weight in consideration for it’s a determining factor for the kind of interest earned. The risk can determine if the interest is a bigger one or otherwise (Fama 2013). In this case, it teaches the business players or business people the importance or rather the benefits of risk in every business not only in the interest bearing securities world.

The interest bearing securities also provide investment opportunities for the growing world of business branding it an employer for a good population in the countries around the globe. In a special way, it’s helping various countries solve and curb the challenges of unemployment to its citizens and the youth mostly affected (Duke and Corporation 2002). It is a secure way for investments of the bonds.

Investors should carefully consider the advantages of various investments when committing their capital because there is a difference in every investment in terms of security, maturity and terms of payment when and interest return. It is a good source for caution in the field of business once one has closely interacted with such businesses.

Role Played by the Interest-Bearing Securities

Previously these investments have played a significant role in shaping the economy. It is evident from the past that interest-bearing security has yielded relatively significant amount of outcome. This therefore means that in the future, these investments will greatly impact our economy. Even from the current contribution in the modern market, the investments have impacted positively in the money market. The debentures even as we are speaking leads the pact in contributing to the rapid growth in the current market (Frenkel 2007). From this, we can estimate that in the near future these investments will act as a major source of income to the community. From the growth rate and the estimation, we can assume that these investments will positively impact our market and there might be more interest bearing securities and portfolio in the market.

 Before we look at some types of investments, it is important for us to note about some rate securities. The interest that a product may offer in the market may differ from others. This is because of many reasons. For instance, when you lend an amount to someone or organization there exists the risk of not dully getting back the exact amount that you lent out. Definitely, both the lender and you must want a higher rate of interest such you can make up for the risks that may be associated. This however may become very expensive, as catering for all these expenses is not particularly an easy task. The risk of missing on security to provide assurance on management of your investments may be expensive (Robinson 2015). These risks are however manageable but at a relatively high cost. It is also important to note that these risks cannot be absolutely eliminated as risks are prone to recur. The image provided below is an indication of how risk may be associated with interest-bearing securities. 

In economic policy, interest-bearing securities have a range of uses. These uses can be measured in terms of valuation, duration, asset allocation and even convexity (Rahman Yusuf and Zamzamin 2014). In terms of valuation, the interest-bearing securities have been largely used to determine the value of the assets in the markets. In this scenario, the assets have been rightly valued without manipulation of the international market standards that have been set by the marketing boards that are being controlled internationally through the marketing boards.

In terms of asset allocation, the interest-bearing securities have been used ethically to allocate the assets belonging to the bodies in connection with the set international market standards (Mishkin 2011). For instance, the set standards regulate the means of allocating the assets without breaching the set standards of marketing. 

Historic and Expected/Current Yield of Interest-Bearing Securities

From this article, we have learnt a lot concerning the ways and means in which the interest-bearing securities can impact the market portfolio management. We have also leant that these investments plays a significance role in shaping the current economy, therefore it is a recommendation for the investors to work on ways that can reduce the risks that are associated with such investments (Singh 2013). This is possible because from our article we have realized that these risks are not permanent but can be worked upon to reduce any chances of reoccurrence. The investors should be able to adapt to the changes that may occur in the market. Therefore, they need to established links with external markets and create some alternatives to ensure that if any risk may occur then, they will be able to control the risks. They are also encouraged to maximize their effort to ensure that they stabilize their market. Competition in the market should act like stepping-stones that should let them in stabilizing their market.

Conclusion

It is important to note that an interest bearing security has in the recent past grown flamboyantly due to the rise in the financial power in the current market. This article encourages us that despite the risks that may be associated with establishing an interest bearing security, there still exists an opportunity to overcome these risks. From this article, it is evident that the interest bearing security and portfolio management should be keenly observed by the investor to avoid their hardly gained capital (Vayanos and Wang 2007). We have also realized that these investments play a significant in shaping the current economy and creating major gaps in the current economy. These interest bearing securities should be keenly monitored to ensure that they play contribute positively to the economy that sucking what has already been pumped in developing the economy. It is also important to note that these investments are also prone to certain limitation and risk that may hinder the development of many interest bearing security investment and portfolio management.

Bamberg, J.H., 2013. The rationalization of the British cotton industry in the interwar years. Textile History.

Bernanke, B.S. and Reinhart, V.R., 2004. Conducting monetary policy at very low short-term interest rates. The American Economic Review, 94(2), pp.85-90.

Buiter, W.H., 2014. The simple analytics of helicopter money: Why it works always. Economics, 8.

Dolvin, S.D., Jordan, B.D. and Miller Jr, T.W., 2012. Fundamentals of investments: valuation and management.

Duke, H., Ibgc Corporation, 2002. Interest bearing gift card and related methods and systems.

U.S. Patent Application 10/298,036.

Fama, E.F., 2013. Does the Fed control interest rates? Review of Asset Pricing Studies, p.rat007.

Frenkel, R., 2007. Argentina: The Central Bank in the Foreign Exchange Market (No. 2007-03).

Center for Economic and Policy Research (CEPR).

Ho, C.S.F., Rahman, N.A.A., Yusuf, N.H.M. and Zamzamin, Z., 2014. Performance of global Islamic versus conventional share indices: International evidence. Pacific-Basin Finance Journal, 28, pp.110-121.

Lagos, R., 2013. Moneyspots: extraneous attributes and the coexistence of money and interest bearing nominal bonds. Journal of Political Economy, 121(1), pp.127-185.

Mishkin, F.S., 2011. Over the cliff: From the subprime to the global financial crisis. The Journal of Economic Perspectives, 25(1), pp.49-70.

Mishkin, F.S., 2011. Over the cliff: From the subprime to the global financial crisis. The Journal of Economic Perspectives, 25(1), pp.49-70.

Pozsar, Z. and Singh, M., 2011. The nonbank-bank nexus and the shadow banking system. IMF Working Papers, pp.1-18.

Robinson, R.I., 2015. Postwar Market for State and Local Government Securities. Princeton University Press.

Sherman, M., 2009. A short history of financial deregulation in the United States.

Singh, M.M., 2013. The changing collateral space (No. 13-25). International Monetary Fund.

Vayanos, D. and Wang, T., 2007. Search and endogenous concentration of liquidity in asset markets. Journal of Economic Theory, 136(1), pp.66-104.

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[Accessed 23 February 2024].

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My Assignment Help. Interest Bearing Securities: Definition, Features, Risks, And Uses [Internet]. My Assignment Help. 2017 [cited 23 February 2024]. Available from: https://myassignmenthelp.com/free-samples/interest-bearing-securities.

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