Borrowing funds to purchase bonds, Financial Management

Assignment Help:

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.


Related Discussions:- Borrowing funds to purchase bonds

What are the factors to consider in a takeover and merger, Factors to cons...

Factors to consider in a takeover/ merger Before a company decides to merge or acquire the following considerations should be taken: Rejection of bid by ta

Wcr expense ratios, Scenario:  ABC Company sells widgets in three varietie...

Scenario:  ABC Company sells widgets in three varieties (blue, red, and yellow) but has lost money for the past three years.  Competitive intelligence shows the Company's products

Calculate the amplitude of the dc component, Calculate the amplitude of the...

Calculate the amplitude of the DC component: A periodic voltage consists of sinusoidal pulses having an amplitude of 150 V (SEE DIAGRAM BELOW). Use Fourier Series Expansion to

Sollution the problem, VK Ltd a multi-product Company, furnishes you the fo...

VK Ltd a multi-product Company, furnishes you the following data relating to theyear 2000.First Half of the year Second Half of the yearSales Rs. 45,000 Rs. 50,000 Total Cost Rs. 4

Calculate the companys horizon value, A. Mitt starts Examine Your Zipper In...

A. Mitt starts Examine Your Zipper Incorporated ("XYZ") in 2012 by selling common stock of $12,000,000. He promises the investors in his company a 15% return on their capital. B

Analysis of financial statement, complete the balance sheet and sales infor...

complete the balance sheet and sales information using the following data: debt to assets ratio 50% current ratio 1.8x total assets turnover 1.5x day sales outstanding 36.5 days (c

The process of review and audit of internal control systems, The process of...

The process of review and audit of internal control systems The board of directors are responsible for review and maintenance of internal controls. Management  of  the  company

Payback period and irr, To look into the feasibility of a new production sy...

To look into the feasibility of a new production system, K-Pad, the largest P.C. producer in the region, has spent $88,000 on the technical feasibility study. In view of the favora

Maturity profile, Maturity Profile Even though there is no ideal theory...

Maturity Profile Even though there is no ideal theory/concept of the maturity of the instruments, some important issues that should be considered while balancing the long-term

Tokyo stock exchange, Tokyo Stock Exchange In the 1870s, a securities s...

Tokyo Stock Exchange In the 1870s, a securities system was introduced in Japan and public bond negotiations began. This resulted in a demand for public trading institution, whi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd