Finance

An Introduction to Repo Markets by Moorad Choudhry

By Moorad Choudhry

The Repo markets have grown dramatically some time past few years as a result of the have to hedge brief positions within the capital and derivatives markets. nearly all significant forex markets on the earth now have a longtime repo marketplace, the power can also be more and more getting used in constructing forex markets in addition.

This publication is a realistic creation that makes a speciality of the tools, purposes and probability administration options crucial for this speedily evolving marketplace. totally up-to-date to mirror the alterations in those markets, the publication additionally comprises labored examples and case experiences, and new sections on basket and established finance repo.

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Most stock loans are on an ‘open’ basis, although term loans also occur. Initial margin is given to the lender of the securities. 4 Securities lending. A dealer needs to borrow GBP 10 million nominal of a specific issue, the 5% gilt due March 2012, from 22 December 2005 to 14 AN INTRODUCTION TO REPO MARKETS 23 January 2006. A pension fund has agreed to lend the stock against collateral, and requires a margin of 102%. 65%, which is Libor-flat, and the stock loan fee is 10 basis points. 30. Note that initial margin is provided to the lender of the bonds, because the lender requires collateral.

Note that initial margin is provided to the lender of the bonds, because the lender requires collateral. 1, because it is the (1-month) London Interbank Offered Rate (Libor) rate. Libor is higher than the government bond repo rate. OTHER REPO PRODUCTS The basic repo product can be dealt in a number of different structures, to suit specific bank customer requirements. 3 Note that this method gives a slightly different answer compared with that of the Bloomberg method, which we discuss in Chapter 3.

The dealer builds in a fee payable to the lending institution as an incentive to do the trade. 5 Bonds borrowed/collateral pledged. ABC Bank plc wishes to borrow DKK 300 million of the Danish Government bond 8% 2001. ABC owns the Danish Government 18 AN INTRODUCTION TO REPO MARKETS bond 7% 2007. ABC is prepared to pay a customer a 40-bps fee in order to borrow the 8% 2001 for 1 month. 70. The total value of DKK 300 million nominal is therefore DKK 338,100,000. 55. 76, which rounded to the nearest DKK 1 million becomes DKK 330 million nominal of the 7% 2007.

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