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The Regional Government Securities Market
Overview
The Regional Government Securities Market
RGSM FAQ's
The Eastern Caribbean Enterprise Fund
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ABOUT THE ECCU'S REGIONAL GOVERNMENT SECURITIES MARKET
       Market           Buying and Selling Government Securities        Legal and Regulatory Network
       
Objectives and Functionalities of the RGSM
Investing in Stocks and Bonds
Trading Government Securities in the Primary Market
Trading Government Securities in the Secondary Market
The Benefits and Risks of Investing in Government Securities
Frequently Asked Questions
Calender of Issues
Prospectus Information
Auction Results
Secondary Market Trading Information

THE BENEFITS AND RISKS OF INVESTING IN GOVERNMENT SECURITIES

Investing is the art of balancing risk and return, so just as with any other security, there are risks associated with government securities. Two (2) possible risks are, (i) interest rate and (ii) credit risks.

Credit risk is the risk that the issuer of the security, in this case a government, will not be able to meet its obligation to the holders of its securities. Investors can take into consideration the government’s history of payments, which can give an indication of the level of credit risk associated with its existing or future securities. In addition the information in the prospectus on the financial and economic position of the government should also give an indication as to the level of credit risk associated with its securities.

Interest rate risk is the risk that interest rates may rise and hence create a decrease in the value of the price of the security. Simply put the price of a debt security moves in the opposite direction to the movements of interest rates. If interest rates increase the price at which a debt security trades will decrease. The reverse is also applicable.

In accordance with the concept of risk and return, the higher the risk the greater the expected return on an investment. The logic is that the seller of the high-risk security should compensate the buyer for purchasing a security that has a higher risk probability relative to other similar investments.

Government securities usually offer higher rates of return than regular savings accounts or fixed deposits. It might therefore be prudent to include the in the portfolio mix. By diversifying your portfolio you can reduce the level of risk.

Very often it is difficult to find the money to do the things we need to do – pay educational expenses, buy a home, cover medical emergencies, name it. One solution to this problem could be to invest in each of the three (3) main types of Government securities. Because they each mature at different periods, they can be selected to meet specific needs. Bonds and notes, for example, provide long-term savings options and are ideal instruments for saving towards a new home, retirement or the children’s education.

Treasury bills, on the other hand, which mature within a year are better suited for savings towards short-term goals, for example the well-deserved vacation, or a down payment on a mortgage. In developing an investment portfolio it is necessary to maintain a mix of long-term and short-term investments that will mature to coincide with specific needs. This will also provide protection to the portfolio from excessive exposure to one dramatic market condition at any given time.

Notwithstanding the best planning in the world, investors sometimes need to encash a security before maturity. The instrument can be sold on the secondary market. Investors in the RGSM can invest in securities offered by any of the eight (8) participating Governments.

Information about the Government Securities Market and the instruments being offered is readily available from licensed intermediaries, Treasury and Finance Departments of participating countries as well as from the ECCB, ECSE and participating Government websites.



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