Question

Discuss how would you allocate and manage fixed-income (debt) securities in Kenya? (Make sure to discuss each of followings: duration, interest rate risk, fixed-debt vs. floating debt, using derivatives, asset/liability management, security lending.)

Answer 1

I would be trying to allocate the fixed income securities in Kenya through proper allocation of those securities in various debt portfolio.

I will be trying to include higher duration debt securities because higher duration of these days securities will be providing me with the long term investment and it will be also helpful in order to get a uniform rate of return for a longer period of time.

I will be trying to to include the the short term securities as well in my portfolio because it will be helpful in order to behave with interest rate risk because interest rate risk will be leading to fluctuation in the entire portfolio value where as short-term securities will be adjusting for the fluctuation in interest rates.

I will be trying to use floating debt securities because that will be helpful in order to adjust myself with variable rate of return of the market and that will be helped in adjustment with variable interest rates in the market so I will be hedhing myself against interest rate fluctuations.

I will be trying to use various kinds of derivatives like I will be including callable securities also in my portfolio because they will be offering a higher rate of return as they can be callable by the company.

I would be trying to match my desired portfolio with asset liability matching concept because these will be helpful in order to manage gap and this will be helpful in order to manage duration of various security so I will be trying to include these debt securities according to the Asset and liabilities management.

I will be trying to consider security lending because it will be offering me with the flexibility in the overall rate of return so this will be including various kinds of short term as well as long term fixed securities which will be providing me with a higher rate of return in the longer period of time.