Download An Introduction to Repo Markets by Moorad Choudhry PDF

By Moorad Choudhry

The Repo markets have grown dramatically some time past few years a result of have to hedge brief positions within the capital and derivatives markets. nearly all significant foreign money markets on this planet now have a longtime repo marketplace, the power is usually more and more getting used in constructing forex markets to boot.

This booklet is a pragmatic advent that makes a speciality of the tools, functions and threat administration concepts crucial for this speedily evolving marketplace. totally up-to-date to mirror the alterations in those markets, the e-book additionally comprises labored examples and case reports, and new sections on basket and dependent finance repo.

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Extra resources for An Introduction to Repo Markets

Example text

2 LIBOR. The term LIBOR or Libor (as already stated) comes from London Interbank Offered Rate and is the interest rate at which one London bank offers funds to another London bank of acceptable credit quality in the form of a cash deposit. The rate is ‘fixed’ by the British Bankers Association (BBA) at 11 : 00 hours every business day morning (in practice, the fix is usually about 20–30 minutes later) by taking the average of the rates supplied by member banks. The term LIBID or Libid is the bank’s ‘bid’ rate – that is, the rate at which it pays for funds in the London market.

This is the same trade, we just adjust the calculation to determine how much securities we need to pass over. 2 shows the calculation using the same security, the 5% 2012 gilt, that we looked at above. 2 Classic repo: investor’s example. On 22 December 2005, a corporate wishes to invest GBP 10 million against UK Government bonds for 1 month. The collateral is the 5% gilt due in March 2012. 61%. 6979. The borrower of cash will need to determine the face value of gilts required at current market price that will equate to GBP 10 million.

Note that 365 is used in the equations because the UK markets assume a 365-day year for money market calculations; the US and euro money markets assume a 360-day year. Securities quoted on a discount basis Treasury bills, bills of exchange, banker’s acceptances and commercial paper are the most important examples of money market securities that are quoted on a discount basis – that is, they are sold on the basis of a discount to par. . . Treasury bills – these are short-term government IOUs of 3 months’ duration.

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