Determinants of the repo rate, Financial Management

Repo rates vary from transaction to transaction. They depend upon a variety of factors like:

  • Collateral's quality

  • Repo term

  • Delivery requirement

  • Collateral's availability

  • Current central bank funds rate (current reserve bank funds rate)

  • Seasonal factors.

The repo rates are directly related to the credit quality and liquidity of the collateral, i.e. if the collateral is of high quality securities and is highly liquid, a lower repo rate is charged. If the collaterals are more price sensitive and less liquid a higher repo rate would be charged. The repo rates also depend on the term of the repurchase agreement. The maturity of the collateral has no effect on the repo rate. If the collaterals are delivered to lender, the repo rates would be low, but a higher repo rate would be charged if the securities are deposited in the bank of the borrower. Securities that are in high demand are known as hot collateral or special collaterals. Repo rates would be low when the collaterals to the loan are hot collateral. Inversely the repo rates would be high when the collaterals are of general nature. Repo rates are usually lower than the central bank's fund rates, as they are unsecured borrowing, while repo involves collateralized borrowing.

Posted Date: 9/11/2012 1:44:43 AM | Location : United States







Related Discussions:- Determinants of the repo rate, Assignment Help, Ask Question on Determinants of the repo rate, Get Answer, Expert's Help, Determinants of the repo rate Discussions

Write discussion on Determinants of the repo rate
Your posts are moderated
Related Questions
Aims of FSA The aim of FSA is to promote efficient, orderly and fair markets, and to help retail consumers to get a fair deal. In fact, FSA has set out its aims under three bro

Towson Enterprises has recognized two mutually exclusive (can’t do both) projects.  The relevant cash flows and timing of those cash flows are shown in the following table.  Suppos

Cost of Preference capital (K ) The fixed rate of dividend payable to the Preference share holders is the cost of Preference capital.  Exactly, the cost of Preference capital

WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT LITERATURE

A mortgage, is sold to the SPV at the discretion of the bank to securitize it into a mortgage backed security, that is, the mortgage is said to

Assume you manage a $4.42 million fund that having of four stocks with the following investments: Stock Investment Beta A

Q. Security offered -  influence the rate of interest ? The rate of interest charged on the loan will be lesser if the debt is secured against an asset or assets of the company

Explain how the premium and discount are determined while assets are PTM (priced-to-market). When would the law of one price prevail in international capital markets although if fo

Bridge Financing A type of short-term financing used to cover an organization short-term want; a loan that is expected to be repaid relatively fast.