Suppose you are given 1 billion Japanese yen. There is no immediate liquidity needs. Should we keep the money in cash or invest it in longer duration bonds?
No way to answer that question without looking at the client’s IPS
But if I were given 1 bln yen, I’d be selling it short (given where the yen appears to be headed…)
so what’s the main difference in investing in the two options? it’s merely market value risk is different, right? since both are Japanese government issued securities.
the client gives you money not to keep it in a bank account (client is fully capable of doing that) but to have it invested and take smart risk for a return. So unles you are forecasting an imminent catastrophy you are well advised to come up with some ideas…
It’s always good to have a little bit cash for emergency purposes, but I agree with dapoopa that you can’t really answer this question without looking at the client’s IPS. Does the client have a billion Japanese yen already seating in US Treasuries or not…etc. If yes, then no need for investment in cash. If no, then you might want to advise the client to put some money aside for emergency purposes.
I understand the investment of the fund should be in a portfolio perspective. But for a mere comparison of the two investment options, money market and JGBs, the focus should be on market value risk, no? Longer duration bonds bear more risk when yield changes.
–> You have 1 billion Japanese yen. --> There is no immediate liquidity needs.
Should I invest money in cash or invest it in longer duration bonds?
Isn’t that way too broad a question??
Short-term duration vs Long-term duration bond? Is the yield upward sloping or flat or downward sloping? There’re so many variables to look at.