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Repurchase Agreement With Bank

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Repurchase Agreement With Bank

If companies are forced to raise immediate cash but do not want to sell their securities over the long term, they can enter into a pension contract. Such agreements are common in large banks and other large financial institutions, but they also work at the small business level. Cash registration is not free, so understanding your potential commitments in a retirement contract can help you control the cost of enrolling extra money in your balance sheet. In the United States, the most common type of repo is the tripartite agreement. A large investment bank acts as an intermediary. It provides an agreement between a financial institution that needs liquidity, usually a stockbroker or hedge fund, and another with a surplus to lend, such as a money fund. The credit risk associated with Repo is subject to many factors: the duration of the repo period, the liquidity of the security, the strength of the counterparties involved, etc. GLOBAL SIFI Supplement. At the end of each year, international regulators measure the factors that make up the systemic score of a global systemically important bank (G-SIB), which in turn determines the G-SIB capital supplement, the additional capital greater than what other banks must hold. If you have many reserves, a bank will not differ beyond the threshold that triggers a higher mark-up; these reserves for treasuries on the pension market could be borrowed. An increase in the systemic score that pushes a bank to the immediately higher level would lead to a 50 basis point increase in the capital premium. Banks that are near the top of a bucket may therefore be reluctant to enter the repo market, even if interest rates are attractive. Deposits with a specified maturity date (usually the next day or the following week) are long-term repurchase contracts.

A trader sells securities to a counterparty with the agreement that he will buy them back at a higher price at a given time. In this agreement, the counterparty receives the use of the securities for the duration of the transaction and receives interest that is indicated as the difference between the initial selling price and the purchase price. The interest rate is set and interest is paid at maturity by the trader. A Repo term is used to invest cash or to finance assets when the parties know how long it will take them. While conventional deposits are generally credit risk tumelas, there are residual credit risks. Although this is essentially a guaranteed transaction, the seller may not buy back the securities sold on the due date. In other words, the pension seller does not fulfill his obligation. Therefore, the buyer can keep the warranty and liquidate the guarantee to recover the borrowed money. However, security may have lost value since the beginning of the operation, as security is subject to market movements.

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