Q&A with CMMB Securities

Q: With interest rates so low right now, I was thinking of transferring all the money in my regular savings account into a money market account. Would that be a good move?

Jenny, La Romain

A: A regular savings account and a money market account are considered to be very liquid investments, however, in a money market fund your principal investment is not guaranteed, though such funds are considered to be relatively safe. It is a wise decision to allocate some, but not necessarily all, of the funds in your regular savings account to a money market fund to take advantage of the higher returns. The money market fund is invested in short-term fixed income instruments and monies can be withdrawn usually with no penalty.

Q. I want to open a US dollar money market account, but it seems I might lose out because the interest rate on the US account is lower than the TT dollar money market account. Why is that?

Leonard, Arima

A: Interest rates on stronger currencies are usually lower than on those of weaker currencies. The higher rate on the weaker currency is to compensate the holder of savings in that currency for the risk of depreciation. This is not to say that because the rate on TT is higher than that of US that the TT dollar is inherently weak. It merely means that compared to the US dollar the TT dollar is relatively weak. If the TT dollar does not depreciate against the US dollar over the term of your investment then you would have gained an extra return by holding your money in TT currency. On the other hand, if there was depreciation of the TT dollar you would have kept the value of your money intact by holding it in US. Therefore, in order to protect your money and get a good return, hold some in TT and the rest in US. Talk to a qualified financial planner on how you should apportion your savings between the two currencies.

Q. With so many large firms in the country, why don’t we see more companies listed on the local stock exchange?

Winston, Montrose

A: The main factor responsible for this is culture. A significant percentage of businesses are family owned and prefer to keep the ownership of the company in their hands. Some business owners get psychological security from keeping the company private. Other large firms, owned by companies themselves, also prefer to keep away from the market due to the risk of takeover from conglomerates who have the spending power to acquire shares. However, it is quite possible to offer less than controlling interest in a company in order to prevent a takeover. The stock market remains a place where cheap capital can be obtained. It is also a good way for companies, which are growing, to subject themselves to the discipline of the stock market where the management of the company and its operations are subject to the scrutiny of investors. This is a good way of keeping the company on the right track. Questions can be sent to PO Box 1830, Wrightson Road, Port-of-Spain

“All information contained in this article has been obtained from sources that CMMB believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgment as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by CMMB in any form whatsoever. CMMB and/or it employees or directors may, where applicable, make markets and effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer or a solicitation to buy or sell.”

Correction: An error was made in last week’s “Business Day.” the first question read: “What’s the difference between an interest-paying investment and a dividend-paying investment?” The last line of the answer should have read: “So although an investor may sell his shares before a payment date, provided he sold his shares after the ex-dividend date, he will be entitled to receive that dividend.”