Suppose You Are a Money Market Dealer and Decided to Increase

question 34

Essay

Suppose you are a money market dealer and decided to increase your holdings of securities the day before the Reserve Bank Board met to consider the cash rate (to profit from the cash rate change you expect).Suppose further that the Board decided to leave the rate unchanged.Explain the trading strategy you would have followed to increase your inventory prior to and following the announcement.

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Definitions:

Profit-Volume Chart

A graphical representation that shows the relationship between a company's profits and its level of output or sales volume.

Total Sales

The sum of all revenues earned from selling goods or services within a specific period.

Total Costs

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Break-even Point

The level of sales at which total revenues equal total expenses, resulting in no net profit or loss.