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

Implementing systems effectively, Implementing Systems Effectively: Muc...

Implementing Systems Effectively: Much of the accounting process has been taken over by office automation systems. Whereas once the vast majority of bookkeeping and reporting t

What are the objectives of financial management, What are the Objectives of...

What are the Objectives of Financial Management To make wise decisions a clear understanding of the objectives that are sought to be achieved in compulsory. Objectives provide

Cash flow yield analysis, A cash-flow yield is the discount r...

A cash-flow yield is the discount rate that makes the price of a mortgage-backed or asset-backed security equal to the present value of its ca

Cost of Capital, The Nu-Nu Brothers Inc. (NNBI) has the following capital s...

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Explain takeovers obligation, Takeover, Inc. is a Delaware corporation whos...

Takeover, Inc. is a Delaware corporation whose only stated purpose is to acquire companies.  It has virtually no assets and no employees other than the original founders who contri

Loan schedules - fixed vs floating, Consider a mortgage example to nance ...

Consider a mortgage example to nance the purchase of a house or flat. You may use a real example or create a ctitious one. Search for di erent types of mortgages currently on o e

Major linen purchase on open account, that the business has far fewer linen...

that the business has far fewer linens than it needs, so he makes a major linen purchase on open account. Which of the following terms refers to the fact that partners Ma and Runni

Investment decision and financing decision, The Investment Decision: - Inv...

The Investment Decision: - Investment decision as well known as 'Capital Budgeting' is related to the selection of long-term assets or else projects in which investments will be m

Venture Capital, Difference between venture capital and conventional financ...

Difference between venture capital and conventional financing

Credit analysis for formulation of optimum credit policy, Q. Credit Analysi...

Q. Credit Analysis for Formulation of Optimum Credit Policy? Credit Analysis: - Credit Analysis is made to estimate the credit worthiness of the customers before making credi

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