Question

Should Financial Institutions Invest in Junk Bonds? Discuss with the requisite justification for your response.

Your initial post should be brief and approximately 350-400 words

Answer 1

Financial institutions invest in several investment avenues to gain certain return. It is one of their way of earnings. They invest in these and get a heavy return. But they invest in blue chip securities as they are safe and can ensure a superior returns. The junk securities are the highest risk carrying securities. The investment in these bonds can be very risky. These carry more risk than other investment securities. But it has been seen that sometimes investing in these can give higher return as more risk means more return. So, investment in these bonds should be baked by careful consideration. The left over or marginal amount can be invested in this security such as any downside should not affect the overall financial health of the invstors. So, financial institutions can only invest some part of their funds in these securities such that any downside or decline should not affect the financial statements.

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