Repurchase Agreement Is A Derivative

In most international textbooks, the pension is not covered by derivatives, but rather is considered an instrument of the money market. We consider the repot to be a derivative because it is derived from money or bond market instruments and its value (i.e. the price of the repot) is derived from another part of the money market (the silver price for the duration of the repo). Although the transaction is similar to a loan and its economic effect is similar to a loan, the terminology is different from that of the loans: the seller legally buys the securities from the buyer at the end of the loan period. However, an essential aspect of rest is that they are legally recognized as a single transaction (important in the event of a counterparty`s insolvency) and not as a transfer and redemption for tax purposes. By structuring the transaction as a sale, a repot provides lenders with significant protection against the normal functioning of U.S. bankruptcy laws, such as. B automatic suspension and prevention of provisions. Once the actual interest rate is calculated, a comparison between the interest rate and other types of financing will show whether the pension contract is a good deal or not. In general, pension transactions offer better terms than money market cash loan agreements as a secure form of lending.

From a reseat member`s perspective, the agreement can also generate additional revenue from excess cash reserves. If positive interest rates are expected, the pf feed-in price should be higher than the initial PN selling price. From the buyer`s point of view, a reverse repot is simply the same buyout contract, not the seller`s. Therefore, the seller executing the transaction would call it a « repo, » whereas in the same transaction, the buyer would refer to it as a « reverse repo. » « Repo » and « Reverse repo » are therefore exactly the same type of transaction that is described only from opposite angles. The term « reverse-repo and sale » is commonly used to describe the creation of a short position on a debt security in which the buyer immediately sells on the open market the guarantee provided by the seller as part of the repurchase transaction. At the time of the count, the buyer acquires the corresponding guarantee on the open market and the pound to the seller. In the case of such a short transaction, the buyer expects the corresponding warranty to decrease between the rest date and the billing date. For the party that sells security and agrees to buy it back in the future, it is a repo; for the party at the other end of the transaction, the purchase of the warranty and the consent to sell in the future, it is a reverse buyback contract.

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