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ACC00716 | Managing Various Sources of Financial Systems

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Questions:

1.Evaluate the activities and impact of the U.S. Treasury Department, state and local governmental units’ involvement in raising funds within the financial system.

2.Locate a U.S. municipal bond. You can use this bond screener to search for a municipal bond. Provide a description of the bond, the bond’s current yield, the bond’s yield to maturity, and the bond’s credit rating. Is the bond an investment-grade bond? How can you tell? Do you think that the bond will experience much interest rate risk? Please justify your decision.
3.When federal, state, and local governments issue securities, what key roles do they play in the financial markets?

4.How do these decisions affect you?

Answers:

1.The primary activities involved of the U.S Treasury Department was overall responsible for managing and controlling the banking system. The U.S Treasury department plays an active role in managing various sources of financial systems within the economy. The U.S Treasury department handles the net revenue and the financial asset of the economy. The US Treasury department is also held responsible for maintain and managing an efficient a proper economic prosperity in the economy and for ensuring that the financial security of the economy of the U.S is maintained in a proper and an effect way (Moore et al. 2015). The U.S. Treasury department and the other state and local government raise funds through direct and indirect means. The direct sources of revenue for the government body is in the form of taxes and duty fees and charges and taxes collected by the local bodies. The indirect source of raising revenue for this organization are through issuance of Treasury bonds and Treasury bills. The treasury bonds and bills issued are government issued securities that help them raise funds for various activities of the organizations (Zhao et al. 2018).

2.The local U.S. Municipal Bond selected for the evaluation was the Utah State GO (917542TW2) the risk and return characteristics were some of the important aspects that needs to be evaluated while assessing the bond investment. The bond is an investment grade bond with the credit rating of the bond as AAA+ that shows that the credit risk involved in the bond is far less as compared to other types of investments or local municipality bonds (Liesen, 2015). The bond taken into consideration is fully backed up by the credibility of the state government.  The bond can suffer from interest rate risk given that the yield curve of the economy changes and the price of the bond with respect to that will also change. The bond will be paying the coupon payments from the taxes collected by the state government of the Utah and the forecast for the same is that the increase in population will be favorable to the bond type and the risk and return preference type. The credit rating of the bond is AAA+, the coupon payment made by the made will be on an annual basis and the rate of coupon on the bond is around 5%. The maturity date for the bond is around 2022-07-01 and the yield from the bond is around 1.91%.  The liquidity factor is not of much a prime concern in this bond as the bond is a government bond backed up by the State Government and the same has a negligible amount of credit risk.

3.The federal state and the local government bodies play a key important role in the financial market whenever they issue securities. The issuance from the local government bodies plays an important role in the financial market, as the liquidity and the market credibility risk are some of the important factors that needs to be considered when the local organizations come with issuance of securities (Rizvi et al. 2014). The securities often are compared as a benchmark for various financial instruments like swaps, fixed income portfolio and other investment portfolio. Credibility is the another factor that is considered by the market participants when such type of bonds are issued by the local government bodies as they are secured form of investment backed up by the state government credibility (Patel, Savani & Poriya, 2017).

4.The decisions may affect the investment criteria and the level of investment done by the market participants. If there were no treasury bonds and bills issued in the market, which is treated as a risk free asset in the market, then the pricing and the valuation of other risky bond in this scenario will be difficult (Kokkonen & Suominen, 2015).

References

Moore, G. F., Audrey, S., Barker, M., Bond, L., Bonell, C., Hardeman, W., ... & Baird, J. (2015). Process evaluation of complex interventions: Medical Research Council guidance. bmj, 350, h1258.

Liesen, A. (2015). Climate change and financial market efficiency. Business & Society, 54(4), 511-539.

Patel, P., Savani, J., & Poriya, N. (2017). Semi-Strong Form of Market Efficiency for Dividend and Bonus Announcements: An Empirical Study of India Stock Markets. ANVESHAK-International Journal of Management, 6(1), 108-121.

Kokkonen, J., & Suominen, M. (2015). Hedge funds and stock market efficiency. Management Science, 61(12), 2890-2904.

Rizvi, S. A. R., Dewandaru, G., Bacha, O. I., & Masih, M. (2014). An analysis of stock market efficiency: Developed vs Islamic stock markets using MF-DFA. Physica A: Statistical Mechanics and its Applications, 407, 86-99.

Zhao, J., Yang, Q., Zhao, J., & Rourke, M. (2018, June). Acoustic method of through-tubing cement bond evaluation based on Mie resonances. In RDPETRO 2018: Research and Development Petroleum Conference and Exhibition, Abu Dhabi, UAE, 9-10 May 2018 (pp. 110-113). American Association of Petroleum Geologists, Society of Exploration Geophysicists, European Association of Geoscientists and Engineers, and Society of Petroleum Engineers

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