Introduction
There are various types of financial instruments including equities, treasury bills, bonds, mutual funds, deposits and cash equivalents. Equities refers to securities that represent ownership in a company and are traded (can be sold and be bought) in the stock markets. They can also be purchased through IPOs; meaning directly buying from a company. Investments in this category are normally considered long term option and have higher returns considering their long term horizon. However, the instrument lo bears high risk. On the other hand, the mutual funds allow groups of investors pool together money that is then professionally managed 8n view of a predetermined objective regarding that investment. They represent a popular investment channel given their risk diversification and cost efficiency, sound regulation as well as professional management. Other key financial instruments are bonds that refer to instruments of a fixed income nature and which are normally issued with the aim of capital sourcing. They are used by governments, companies and the financial institutions for purpose of raising funds with those issued by the government being the leas risk in the category. Further, deposits represent low risk and return instruments that are mainly used for securing funds in post office or banks. Finally, there are the cash equivalents that are relatively safe as well as highly liquid options for investments investment options. They include the money market funds and treasury bills. In that respect, this analysis compares Saudi Arabia and UAE in terms of three financial instruments including currency instruments, bonds and treasury notes. That will help identify the nature of operations in the two economies as well as the relative performance in the instruments
Analysis
Bonds
Bonds in UAE
The Emirates NBM has an offer for fixed income instruments that include bonds that are applied in diversification of investment portfolios generating long term growths.
Bonds in Saudi Arabia
The Saudi has had substantial bond offers as a means of plugging the budget shortfall. That happened as the country raised ove4r 20Billion Riyals to sustain the spending plan in view of the decline in oil and energy prices that the government heavily relies on (Parasie and Ahmed, 2015).
Currency instruments
Currency instruments performance in UAE
Despite the volatility in the oil prices as well as continuing turmoil across countries including Syria, Libya and Iraq and given the terrorist acts in Tunisia as well as insurgency across Yemen the year’s first quarter was marked by substantial currency reserves and low currency risk in and UAE with UAE allowing banks to reclassify loans from the nonperforming category to the “performing category.
Currency instruments performance in Saudi Arabia
In view of the volatility that marked the Middle East, there was a strong PMI reading in Saudi Arabia owing to the supplementary spending of $29bn that was announced by King Salman after accededing to throne late January. That is an indication of a close performance in the Saudi and UAE currency instruments.
Treasury notes
Treasury notes in Saudi Arabia
Saudi Arabia government has had substantial issue of treasury bills with an example f 2014 when there was a substantial rise in the Banks holding of the treasury bills; reaching a record high in March 2014. That was associated with the great shift in the stock market as fund managers shifted their portfolios in the market (Arnold, 2014).
Treasury notes in UAE
The UAE government is yet to issue government treasury bonds. However, there are plans for the first UAE government treasury bonds to be issued in 2018. The planned UAE issue is means for achieving the global liquidity standards (Noura and Martin, 2014).
Conclusion
In view of the analysis, it is clear that the two nations vary in some operations regarding the financial instruments while some operations are relatively similar. For instance, the Saudi government has been noted to have issued substantial government treasury notes while the UAE government is yet to have its first offer although there are plans to issue by the year 2018. Regarding the currency securities performance, the two nations are indicated to be relatively the same with the example of strong performance in year 2015 regardless of the turmoil that faced the region. Finally, it is noted of substantial offer of private bonds in the UAE as means of diversification while the there has been substantial offer in Saudi Arabia as a means of managing the budget shortfall.
References
Arnold, T. (2014). Saudi Arabia tries to cool stock market with treasury notes. The National May 5, 2014. Retrieved 24 April 2016 from, http://www.thenational.ae/business/industry-insights/markets/saudi-arabia-tries-to-cool-stock-market-with-treasury-notes
Noura, A. and Martin D. (2014). UAE may issue federal govt bonds by 2018, studies ongoing –ministry. Reuters July 20, 2014. Retrieved 24 April 2016 from, http://www.reuters.com/article/emirates-bonds-finmin-idUSL6N0PV0HE20140720
Parasie, N and Ahmed, A., (2015). Saudi Arabia Issues Bonds Worth $5 Billion to Plug Budget Shortfall. Retrieved 24 April 2016 from, http://www.wsj.com/articles/saudi-arabia-issues-bonds-worth-5-billion-to-plug-budget-shortfall-1439305126
