Question

1. We have the money market and capital market. Between the two which one will you advice an investor to trade on when the economy is at recession and why.

2.Currently we are receiving messages from central bank of Kenya on their securities on sale. Briefly explain the stages your parent would undertake to have a complete purchase of treasury bills. (10 mks)

Answer 1

1.capital market and money market are major market which will be used by many company in generation of the short term capital and the long term capital and investor is also trying to invest in these markets in order to generate high rate of return.

I will always be advising the investor at the times of recession in economy to invest into money market rather than capital markets because in money market there would be instruments which would be risk free like treasury bills which will be providing a complete hedge against any kind of risk in recession so I will be trying them to invest into money market instruments

2.stages which will be undertaken in order to have a complete purchase of the treasury bills will be as follows-

A. One need to to purchase the treasury bills from the money market where it is traded continuously,if he wants to purchase from already issued treasury bills.

B. Treasury bills are often issued primarily by the central bank so it can be purchased through the central bank if it want to get subscribed for the first time

C.treasury bill will also be having bond yields so an investor who is looking to purchase through secondary market will be trying to buy the treasuries at lower yields so that he would be getting higher rate of return