Essay Sample on Treasury Bonds

2021-05-25 22:40:06
1 pages
362 words
University/College: 
Carnegie Mellon University
Type of paper: 
Research paper
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This kind of bonds is mainly referred to as long bonds. They are identical to Treasury notes only that they do mature within a period of 30 years. An auction process is used in determining the price of the yield. Furthermore, competitive bid requires investors to use bankers or brokers while non-competitive bid cat is placed in the treasury direct. T-bonds are issued at $1000 and matures at $1,000 par value (Levisauskait, 2010).

Discuss how arbitrage opportunities affect the different market participants and the types of interest rates they will require

Arbitrage refers purchasing of security in one market and selling in a different market simultaneously. This is regarded as one of the riskless profit for the investor. Traders have tried to exploit arbitrage opportunities in the stock markets. For instance, an investor may purchase stock on a foreign exchange market where the prices are stable and have not been influenced by fluctuating exchange rate. As such, the price of the stock on the foreign exchange market is underestimated as compared to the prices of the same stock on the local exchange, as a result of this different, the trader ends up making more profit. The arbitrage opportunities affect various market participants, looking at above example, the buying and selling of the stock will push the cheaper stocks price up and the higher stock price down. The entire process will affect the participant who bought the stock at a higher as it will end up pushing the prices of the stock down on both the local market and foreign market (Marshall, Treepongkaruna & Young, 2008).

Notably, the investors and traders can utilize opportunity arbitrage focus more on the interest to make sure that the opportunity is no more. For instance, in this case, they will check the foreign market and the local market and focus on eliminating the differences between the two markets. This ensures that the such as liquidity, risk default among others are nearly equal to the essential value (Marshall, Treepongkaruna & Young, 2008).

References

Levisauskait, K. (2010). Investment Analysis and Portfolio Management. Leonardo da Vinci

programme project.

Marshall, B., Treepongkaruna, S., & Young, M. (2008). Exploitable arbitrage opportunities exist

in the foreign exchange market. In American Finance Association Annual Meeting, New

Orleans.

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