Who Uses Repurchase Agreements

Who Uses Repurchase Agreements

The same principle applies to rest. The longer the life of the pension, the more likely it is that the value of the security will fluctuate prior to the buyback and that economic activity will affect the supplier`s ability to execute the contract. In fact, counterparty credit risk is the main risk associated with rest. As with any loan, the creditor bears the risk that the debtor will not be able to repay the investor. Rest acts as a guaranteed debt, which reduces overall risk. And because the price of the pension exceeds the value of the guarantees, these agreements remain mutually beneficial to buyers and sellers. 2) Cash payment on the redemption of the guarantee Cash paid on the initial sale of securities and cash paid at the time of redemption depend on the value and type of guarantee associated with the pension. In the case of a loan. B, both values must take into account the own price and the value of the interest accrued on the loan. The main difference between a term and an open repo is between the sale and repurchase of the securities. Pension transactions are generally considered to be a reduction in credit risk. The biggest risk in a repo is that the seller does not maintain his contract by not repuring the securities he sold on the due date. In these cases, the purchaser of the guarantee can then liquidate the guarantee in an attempt to recover the money he originally paid.

However, the reason this is an inherent risk is that the value of the warranty may have decreased since the first sale and therefore cannot leave the buyer with any choice but to maintain the security he never wanted to maintain in the long term, or to sell it for a loss. On the other hand, this transaction also poses a risk to the borrower; If the value of the guarantee increases beyond the agreed terms, the creditor cannot resell the guarantee. 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.

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