Explanation:
Statement B describes a repurchase agreement (repo), not a total return swap (TRS). A TRS is a contract in which one party receives the total return of an asset (including both income and capital gains/losses) and pays a set rate (usually a floating rate like LIBOR plus a spread).
Ultimate access to all questions.
A
Margin lending is lending for the purpose of financing a security transaction in which the loan is collateralized by the security
B
Total return swaps (TRS) are matched pairs of the spot sale and forward repurchase of a security. Both the spot and forward price are agreed now, and the difference between them implies an interest rate
C
In a securities lending transaction, one party lends a security to another in exchange for a fee, generally called a rebate. The security lender, rather than the borrower, continues to receive dividend and interest cash flows from the security. A common type of securities lending is stock lending, in which shares of stock are borrowed.
D
A haircut ensures that the full value of the collateral is not lent. A haircut of 10.0%, for example, means that if the borrower of cash wants to buy $100.00 of a security, he can borrow only $90.0 from the broker and must put $10.0 of his own funds in the margin account by the time the trade is settled. Similarly, the lender of cash will be prepared to lend $90 against $100 of collateral.
No comments yet.