Folder:
115 CFA
File:
115.070.02.05 Fixed Income - Reading 43 - 5. Short-Term Funding Alternatives Available to Banks

5. Short-Term Funding Alternatives Available to Banks

h. describe short-term funding alternatives available to banks;

i. describe repurchase agreements (repos) and the risks associated with them.

What are four different short-term funding sources available to banks?
- Retail deposits
- Central bank funds
- Interbank funds - loans and deposits between banks
- Large denomination negotiable certificates of deposit

What is a repurchase agreement?
A repurchase agreement is the sale of a security with a commitment by the seller to buy the same security back from the purchaser at a specified price at a designated future date. It is actually a collateralized loan.

In regards to bank loans, what is an overnight repo? What is a term repo?
A loan for one day is called an overnight repo. A loan for more than one day is called a term repo.

What is a reverse purchase agreement?
From a dealer's perspective, if it is lending cash, the repo is then referred to as a reverse repurchase agreement.

What is the repo margin?
The difference between the market value of the security used as collateral and the value of the loan is the repo margin.


Source:
  • CFA