Borrowing funds to purchase bonds, Financial Management

Borrowing Funds to Purchase Bonds

There are several sources available to borrow funds. When securities are purchased with borrowed funds then the most common practice is to use the securities as collateral for the loan. In such a case, the transaction is referred to as a collateralized loan. The most common collateralized borrowing arrangements used by the investors are:

Margin Buying

In this kind of arrangement, the broker provides funds to buy the securities and he gets the money form banks. The interest rate the banks charge to the broker for these transactions is known as the call money rate or broker loan rate. The broker charges the investor the call money rate plus service charge.

Repurchase Agreement

This is an agreement sale to a security with the commitment that the seller will buy back the same security from the purchaser at a pre-specified price and date. The price and date at which the seller purchases the security are known as the repurchase price and repurchase date respectively. The implied interest rate is also known as repo rate. When the term of the loan is one day, it is called an overnight repo, and when the loan period is more than one day, it is called a term repo.

Posted Date: 9/8/2012 4:23:07 AM | Location : United States







Related Discussions:- Borrowing funds to purchase bonds, Assignment Help, Ask Question on Borrowing funds to purchase bonds, Get Answer, Expert's Help, Borrowing funds to purchase bonds Discussions

Write discussion on Borrowing funds to purchase bonds
Your posts are moderated
Related Questions
In a fixed-rate coupon bond, the change in the price can be attributed to the change in the market interest rates. This change is due to the difference in the pre

The following are extracts of the Income Statement and Balance Sheet for Umar plc. Extract Balance Sheet at 30 June 20X2               20X1 £'000  £'000                £

Modified duration is used to determine the percentage change in the bond's prices for a 100 basis point (1%) change in the yield. The underlying assumption is tha

Need for Simulation If the mathematical model set up could always be optimized by the analytical approach, then, there would be no need for simulation. Only when interrelation

Saven Travel Corporation is considering several investment opportunities in order to diversify its operations. Mr. Saven, president, is trying to determine the firm''s cost of capi

How does the theory of comparative advantage relate to the currency swap market? Answer:  Name recognition is very important in the international bond market. With no it, even a

Assets Pension insurance companies' assets can be divided into five main investment classes: cash, long-term bonds, stocks, property and loans. The total returns on the assets

Is it possible to make money in the stock market when the quotations are going down? What is credit sale? There are three simple moves to make money when prices are going down:

Q. What is Evaluation of Credit Policy? Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnov

What is a sunk cost?  Is it relevant while evaluating a proposed capital budgeting project?  Explain. A sunk cost is a cash flow which has previously occurred, or that will take