Banks often close Repo-Deals with other banks. Today the lower Rhine-Bank (LRB) owns a 6% CHF-fixed coupon bond which was issued by the Swiss Novartis Group and is subject of a Repo-Deal. Three months ago the bank closed the Repo-Deal which originally had a maturity of six months. 1. Please name the risk which is hedged by Repo Deal. 2. Please name two risks which are related to the above mentioned bond. 3. Select one risk of the above mentioned bond and name one means/financial instrument in order to hedge the selected risk.
Banks often close Repo-Deals with other banks.
Today the lower Rhine-Bank (LRB) owns a 6% CHF-fixed coupon bond which was issued by the Swiss Novartis Group and is subject of a Repo-Deal.
Three months ago the bank closed the Repo-Deal which originally had a maturity of six months.
1. Please name the risk which is hedged by Repo Deal.
2. Please name two risks which are related to the above mentioned bond.
3. Select one risk of the above mentioned bond and name one means/financial instrument in order to hedge the selected risk.
4. Briefly describe the events or actions which
a. Took place three months ago,
b. will take place in three months.
Step by step
Solved in 4 steps
Briefly explain one advantage for each of the two Repo-Deal contract partners.
Compare the costs of a Repo-Deal and a ''normal'' interbank-loan contract for an equal repayment value.
Remark: Operational cost (e.g: Salaries, rent) and profit can be neglected in your costs analysis.
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