Repurchase Agreement Is A Money Market Instrument

Chart 7.4. Money market investment fund: total financial assets. In addition to promoting savings and investment, money market instruments promote liquidity and security of financial assets. 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. Money and control instruments are an essential part of money market instruments. Its components include inbound and outbound clearing controls, as well as all types of transactions made on the basis of payments and cash vouchers. Audits are debts to a bank, while external clearing instruments are added to their short-term funds as assets.

Banker`s cheques and traveller`s cheques are also treated in the same way in a bank`s books. Cash transactions are high risky. Some of these risks are unavoidable, but can be anticipated. In this sense, risk forecasting focuses on the decision to adopt effective control measures. The success of the cash flow business requires care on the part of the cash register agents and their subordinates. The money market helps short-term users meet their needs at a very reasonable price. homogeneous characteristics of instruments within risk categories. Money markets contribute not only to the storage of short-term surpluses, but also to the reduction of short-term deficits.

The money market contributes in two ways to the growth of the industry: the backup credit line is a short-term note that protects investors in a business. Here, a bank guarantees to pay between 50% and 100% of the money market instrument in the event of an issuer`s failure. The bank issues a loan-to-pay to use the money market instrument if the issuer does not. Banker`s Acceptances are financing agreements guaranteed by the issuing bank, which are created for import and export operations, as well as for the storage and shipping of goods within the United States. An importing company can, for example. B, give a banker`s acceptance to an executor and thus limit the risk of non-payment to the sender.

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