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

Explain the compound interest, What is compound interest? Compare compound ...

What is compound interest? Compare compound interest to discounting. Compound interest takes place while interest is earned on interest and on the original principal of an invest

Estimate the montly deposite, Mr. Moore will be 35 years at the end of the ...

Mr. Moore will be 35 years at the end of the month and he wishes to retire in 25 years. He plans to invest in a mutual fund earning 7.5 percent annual return compounded monthly an

Hedging strategy, Crown Co. is expecting to receive 100,000 British pounds ...

Crown Co. is expecting to receive 100,000 British pounds in one year. Crown expects the spot rate of British pound to be $1.49 in a year, so it decides to avoid exchange rate risk

Foreign exchange rates, Foreign Exchange Rates The proportional va...

Foreign Exchange Rates The proportional value of one currency to other, used to exchange currency from one denomination to another.  For example, one British pound is wort

Determine the types of users, Determine the Types of users Investors -loo...

Determine the Types of users Investors -look at the risk of their investment, future growth and profitability. Managers / employees-have access to more information and will want

Show external business risk, Q. Show External business risk? External r...

Q. Show External business risk? External risk is the result of operating conditions imposed on the firm by circumstances beyond its control. The external environments in which

Calendar studies, Calendar Studies These attempted to predict rates of ...

Calendar Studies These attempted to predict rates of return during a calendar year and examine if there is any particular observable pattern in the rates of return on the stock

Operating cycle, operating cycle of a vegetable growing business

operating cycle of a vegetable growing business

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