fixed income markets

Question 1

non financial short term funding

Answer 1

1. lines of credit
   2.

Question 2

lines of credit

Answer 2

1. uncommitted
2. committed (regullar)
3. revolving credit agreement

unsecured loans

Question 3

uncommitted

Answer 3

1.can be canceled at any time
2. least reliable
3. up to certain ammount
4. floating rate +spread
5. no cost other than interest

Question 4

committed

Answer 4

1. formal written committment
2. up to 365 days
3. will involve commitment fee
4. borrower face renewal risk

Question 5

revolving credit agreements

Answer 5

1. multi-year
2. covenants will be added

Question 6

secured loans

Answer 6

asset backed (fixed assets, receivebals, securities)

Question 7

commercial paper

Answer 7

issued by a larger highly rated companies

1. unsecured notes to fund or bridge financing
2. typically rolled over
3. usually requires back up line of credit

Question 8

bridge financing

Question 9

deposits

Answer 9

financing of banks

Question 10

saving deposits

Answer 10

lokata, pays interest in maturity. (<1y)
1. penalty in early withdrawn
2. retail - small, institutional large

Question 11

interbank market

Answer 11

short term lending between financial institution
1. Interbank rate (central banks funds rate)
2. up to 1 y

Question 12

borrowing from central bank

Answer 12

1. greater rate
2. more oversight (you may do smth wrong)

Question 13

commercial paper

Answer 13

unsecurred, dominated by large financial institution

Question 14

repurchase agreement

Answer 14

1. sale of a security with agreement to repurchase it (usually sov bond)
2. short term financing
3. buyer buys security. After a repo term seller gives money back with repo rate, buyer gets also yield
4. repos are generally overcollateralized

Question 15

overnight repo

Answer 15

1 day

Question 16

term repo

Answer 16

> 1 day

Question 17

repo counting

Answer 17

initial margin = security price/purchase price

if the collateral value changes margin may change

Question 18

haircut

Answer 18

we buy a face of a security for a slightly slower amount. the difference is a haircut

Question 19

repo rate

Answer 19

yearly rate of a collateral grow

Question 20

variation margin

Answer 20

how much are we overcollaterilized

Question 21

why repo

Answer 21

1. finance ownership of a security
   2.earn short term income
2. borrow the security in order to short it

Question 22

shorting a security by repo

Answer 22

1. borrow the security (very specific ones) buyer pays interest (negative repor rates)
2. sell a security (cash)
3. buy a security back (hopefully at a lowe price)
4. return a security

when a security price drop we win

Question 23

repo risks

Answer 23

default risk - counterparty may not repurchase
collateral risk - only low quality collateral
margining risk - counterparty may not meet margin calls if the collateral drops in value
legal risk

Question 24

netting risk

Answer 24

one party wont send smth

triporty repo violates this risk

Question 25

long term corporate debt

Answer 25

more stable funding

wider spread at wider maturity (more credit risk)

if shorter maturity rollover risk (less stable funding)