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Short-term Funding Alternatives to Banks 50:8
Terms in this set (31)
Whenever the amount of retail deposits is insufficient to meet the banks financial needs, banks need to raise funds from this market....
1. Central Bank (Reserve Funds)
2. Interbank deposits
3. Certificates of deposit
Wholesale funds include:
1. fill gap between loans and deposits
2. Minimize their funding costs
3. Balance sheet risk management tool to reduce interest rate risk
Three (3) Whole sale funds uses
Money Market Accounts
This serves as an intermediate between demand deposits and savings accounts...
When the maturity ranges from two days to one year for central bank opens market operations it is called this.
Fed Funds Effective rate
This is the volume-weighted average of rates for Fed funds trades arranged throughout the day by the major New York City Brokers.
these deposits are generally unsecured and require an interbank line of credit in place with that institution.
Interest is payable at maturity and dealing takes place on the reuters electronic dealing system.
is an instrument that represents a specified amount of funds on deposit for a specified maturity and interest rate
the deposit plus the interest are paid to the initial depositor at maturity....with a withdrawal penalty being imposed if the depositor withdraws funds prior to maturity date.
allows any depositor to sell the CD in the open market prior to the maturity date.
Small & Large denomination CDs
these are two types of Negotiable CDS
are an important source of wholesale funds and are typically traded among institutional investors.
Yields on CDS ____________ during times of economic turmoil.
Eurocommercial paper is most likely:
Sinking Fund Arrangement
This term in a bond issue most likely helps to reduce credit risk
these have interest rates that reset periodically
Serial maturity structure
for the issuer, a sinking fund arrangement is most similar to a:
This is a source of wholesale funds for banks
These types of CDs can be sold in the open market prior to maturity.
Lower Repo Rates
Highly rated collaterals generally have __________ repo rates
Repo rates generally ______________ with maturity
Repo rates are ___________ when delivery to the lender is required
The more scare a specific piece of collateral, the _____________ there repo rate
A repurchase agreement is set up to where the ____________ is the most vulnerable party.
One party is borrowing money and providing collateral for the loan at an interest rate that is typically lower than on an otherwise similar bank loan.
The counterpart is making a collateralized loan to the dealer. These are very often used to cover short positions.
The longer the repo agreement, the _____________ the repo margin.
The higher the quality of collateral, the _____________ the repo margin.
the higher the creditworthiness of the counterparty, the _____________ the repo margin.
Repo margins are ______________ if the collateral is in short supply of if there is a high demand for it.
Recommended textbook explanations
Principles of Economics
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