chap 6 b -...

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Risk of Money Market Investments Credit risk (or default risk): the risk that a borrower may not repay on a timely basis Interest rate risk: the risk that the value of an investment could decline as a result of a change in interest rates Liquidity risk: the potential loss that could occur as a result of converting an investment into cash Risk of Money Market Investments Impact of expected economic conditions on liquidity needs If you suspect economic conditions may weaken, you may wish to ensure that you maintain a greater degree of liquidity You could allocate more funds to liquid money market securities and less funds to other types of investments Risk Management of Money Market Investments Risk assessment of money market investments Most money market investments are federally insured Treasury securities are nearly risk free Remember the relationship between risk and return Financial Planning Online: Identifying Insured Investments Go to: http://www
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Unformatted text preview: .fdic.gov/consumers/consumer/information/fdiciorn.html This Web site provides information on what types of investments are insured and what types are not. Risk Management of Money Market Investments (contd) Determining the optimal allocation of money market investments Anticipate upcoming bills and have adequate funds in your checking account Estimate additional funds needed in near future and invest in a liquid investment Use remaining funds in a way that will maximize your return, considering your risk tolerance Optimal Allocation of Money Market Investments How Money Management Fits Within Your Financial Plan Key money management decisions for your financial plan are: How can you ensure that you can pay your anticipated bills on time? How can you maintain adequate liquidity in case you incur unanticipated expenses? How should you invest any remaining funds among money market investments?...
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This note was uploaded on 02/22/2012 for the course FINANCE 250 taught by Professor Maryevans during the Spring '12 term at Rutgers.

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