Consider you are a cash manager of a multinational corporation (MNC) based in the United States. One of your responsibilities is to gain the highest yield for your treasury cash. Complete the following:
Visit the Markets: United States Rates & BondsLinks to an external site. webpage and click on a country to review its interest rates.
Select a country to invest in for one year.
Describe why you chose that country and your expected yield for the next year.
Your initial response should be a minimum of 200 words. Graduate school students need to learn how to assess the perspectives of several scholars. Support your response with at least one scholarly and/or credible resource in addition to the text.
Full Answer Section
- Expected Appreciation of the New Zealand Dollar (NZD): While there's inherent uncertainty in currency markets, some analysts predict a potential appreciation of the NZD against the USD in the coming year. This potential appreciation would further increase returns on the investment.
Expected Yield:
Considering the current OCR of 4.25% and the possibility of further hikes by the RBNZ to combat inflation, we can conservatively expect a yield of at least 4.5% over the one-year investment period. This represents a significant potential gain compared to yields offered on US treasury bills or money market instruments.
Scholarly Support:
According to a recent research paper by Carney (2022) [invalid URL removed] titled "The Global Implications of Normalizing Monetary Policy," central banks around the world, including the RBNZ, are expected to continue raising interest rates to address inflationary pressures. This aligns with our expectation of continued high interest rates in New Zealand, making it an attractive investment destination.
Conclusion:
By investing in New Zealand for a one-year horizon, we can potentially achieve a significantly higher yield compared to US options. The combination of attractive interest rates, a stable economy, and potential currency appreciation makes New Zealand a compelling choice for our cash investment strategy. It's important to note that this is a simplified example, and a comprehensive investment strategy would involve a thorough risk assessment and diversification across multiple currencies and instruments.
Sample Answer
Investment Choice: Based on a review of interest rates on "Markets: United States Rates & Bonds [invalid URL removed]" for various countries, I recommend investing the treasury cash in New Zealand for a one-year horizon.
Rationale for Selection:
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Attractive Interest Rates: Currently (as of May 14, 2024), the Official Cash Rate (OCR) set by the Reserve Bank of New Zealand (RBNZ) stands at 4.25%. This is significantly higher than the current federal funds rate in the US, which is targeted at a range of 0.25% to 0.50%.
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Stable Economy: New Zealand boasts a relatively stable and developed economy with a strong credit rating (AA+ by Standard & Poor's). This economic and political stability reduces the risk of currency fluctuations and defaults, making it a secure investment destination.