Money Market Adjusted Return vs Yield: An Academic Overview

Price Discovery in Foreign Currency Intervention

In finance, foreign currency intervention is the buying or selling of local currency in the foreign exchange market for the purpose of stabilizing or influencing exchange rates. Extreme swings in capital flows have long been a cause of concern for policy makers due to the potential risks of macroeconomic and financial instability. This paper develops a new approach for exploring the effectiveness of foreign currency intervention, focusing on real exchange rate adjustments and their implications for price discovery.

Indeed, numerous studies find that futures markets tend to lead cash markets in terms of price discovery.2 This is important, as we focus on price adjustments in both the spot and futures markets in response to foreign currency intervention. A comparison of price movement between the two markets reveals whether intervention had an effect, and provides insight on how it is affecting exchange rates.

Defining Adjusted Return and Yield Forex

Adjusted return is a performance measure, from the investor’s perspective, which takes into account the risk associated with any investment. It considers the investor’s risk which is not recognised when direct return is taken into account alone. In this paper, we look at adjusted return in reference to foreign exchange investments.

Yield forex is a measure of foreign exchange performance in terms of return on investment (ROI). An investor’s return is calculated by subtracting the cost of their foreign investment from the value of the same currency at a later date. This produces an ROI, which is then expressed as a percentage of the original investment.

Calculating Adjusted Return and Yield Forex

In order to calculate adjusted return, it is first necessary to estimate the risk associated with each investment. Adjustment for risk is typically done by factoring in a default/risk-free rate of return; in this case, the foreign exchange rates associated with the investor’s original investment. The investor needs to subtract the default rate from the return rate for each investment in order to get the adjusted return.

Yield forex is calculated by subtracting the cost of the original foreign investment from the current market value of that currency. The difference is divided by the initial cost of the investment and expressed as a percentage of the investment. This calculation yields the net return or yield associated with the individual investment.

By comparing the cash market returns with the futures market returns, investors can gain insight into how effective foreign currency intervention is. This becomes even more evident when they consider the adjusted returns and yields of the various investments. By better understanding the cause and effect of foreign currency intervention, investors can make more informed investment decisions and better manage their risks.

Money Market Fund Yields on the Rise

Money market fund yields are currently increasing, as they benefit from higher rates of return coming from the Federal Reserve raising interest rates. In general, these funds tend to aim to pay dividends that are reflective of short-term interest rates. This means that the yield that investors can expect from the fund will be higher than what is typically offered in a high-yield savings account.

The main benefit of investing in a money market fund is that the returns can be more predictable than other types of investments. Money market funds are usually much more liquid than other types of investments, providing access to funds when needed. This liquidity is a major factor why they are so appealing to investors.

Average Returns of Money Market Funds

In terms of average returns, money market funds typically have higher returns than high-yield savings accounts. While the yields can vary depending on the particular fund, a reasonable expectation is a return of 1-2% per year. Generally, the return from a money market fund is on par with a money market account, with possible fluctuations due to the type of investments that the fund is invested in.

Money market funds also offer a bit of safety compared to other investments, since the underlying investments tend to be short-term and of high quality debt. This means that the principal is less susceptible to sudden fluctuations in the market. Some investors also find that money market funds are slightly more predictable in terms of their returns, which can be helpful in terms of planning out financial goals or budgeting.

Things to Consider Before Investing in Money Market Funds

When considering what type of investments to make, investors should keep in mind that money market funds don’t usually offer the higher yields of other types of investments. They also lack the potential for large capital gains, so investors should take this into consideration when looking at their portfolio over time.

Also, money market funds can sometimes carry heavier management fees, so investors are encouraged to do their own research and compare what different funds are offering. In terms of safety, the principal is usually protected since the underlying investments are typically short-term and of high quality.

Finally, investors should know that the yield and return of money market funds may change over time. Since the fund is invested in short-term debt securities and other investments, a change of environment can result in an altering of yield, so investors should be aware of this risk as well.

Overall, money market funds offer investors the ability to access funds more quickly than other types of investments, while providing a solid yield and return. With proper research and understanding of the potential risks and rewards, money market funds can be a great addition to any portfolio.