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Essay / Research Paper Abstract
This 3 page paper answers 3 questions concerning investments. The first looks at how a portfolio using fixed interest rate tools could be complied to avoid interest rate fluctuations. The second part of the paper discusses whether zero coupon bonds is a good way of immunising a portfolio and the last part of the paper looks at the use and examples of equity indices. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEinvque1.rtf
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Unformatted sample text from the term paper:
there is no risk, as just with any other investment there is the potential for fluctuations in the prices if they are tradable instruments, interest rates may also change in
the long term and the investments may not be suitable or have such a long term. In addition to this where rates increase a portfolio built at lower fixed rates
will be worth less in terms of the capital value of the instruments and the return they are creating. One strategy can be to ensure that diversification take place,
in this case diversification is to get a spread across different markets where there are different interest rates are found, however this can also increase exposure to other risks such
as currency exchange risks, with may be unsuitable if the investor does not want this level of risk. The portfolio can also be built up out of a selection
of different term product it is also possible to use fixed rate products that are linked to inflation rather than a set rate, such as fixed at 2% over inflation
or over the base rate. This type of investment will also have a much lower level of fluctuation over time. The final method of reducing risk may be the
consideration of hedging against interest rate changes. Hedging is an action or transaction that is undertaken in order to avoid the risk of exposure to an open position, such as
the interest rate changes (Tan, 2002). The use of hedging is complex and it is possible that in some instances is may eat into the products or even cost more,
but it is often worth consideration. Question 2 It has been argued that the use of zero coupon bonds is a god way of immunising a portfolio, but this
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