Contracts are standardized with trading for specific quantities in specific months. Dealings conducted amongst members of the clearing exchange alone. Clearing houses act as a guarantor of contract performance, i.e. the fulfillment of contract obligations by its members through the collective financial resources of the clearing house irrespective of what happens to the individual trader. Trading/transaction costs are relatively low. Daily mark-to-market process whereby all profits and losses on open futures positions are settled daily. Market information communicated to all participants. The markets should have high liquidity. (5marks) 4.b It cannot be stolen Its value is determined by the market forces and in inflationary times acts as a viable store of value. Property price cycles are usually long ensuring stability. Its as security is high. The assets do not require active management (5marks) 4.c A repurchase agreement is a sale of securities with an undertaking by the seller to repurchase the same securities a stipulated period of time at a price determined at the time of the sale. The essence of a repurchase agreement is to adjust the original maturity of a particular money market asset to suit the needs of an investor. The buyer is said to be making a or resale agreement or the particular financial asset. “carry” “warehousing” Repurchase agreements are generally entered into by financial institutions because the securities they wish to sell may not have the exact maturity desired by the purchaser. They may also be entered into to finance holdings of securities. This would tend to be done on an interest rate view. There are two types of repurchase agreements. The agreement “open” gives the creator or the purchaser the option of closing the agreement at any time. The closing would usually be the result of either an interest rate consideration or the purchaser requiring the cash. repurchase agreements are agreements that are entered into for “Term” a specific period, and do not offer the maker or the purchaser any options. As repurchase agreements are entered into in respect of specific financial assets, the denominations available are the same as those of the securities underlying the transaction. (5marks)
Contracts are standardized with trading for specific quantities in specific months. Dealings conducted amongst members of the clearing exchange alone. Clearing houses act as a guarantor of contract performance, i.e. the fulfillment of contract obligations by its members through the collective financial resources of the clearing house irrespective of what happens to the individual trader. Trading/transaction costs are relatively low. Daily mark-to-market process whereby all profits and losses on open futures positions are settled daily. Market information communicated to all participants. The markets should have high liquidity. (5marks) 4.b It cannot be stolen Its value is determined by the market forces and in inflationary times acts as a viable store of value. Property price cycles are usually long ensuring stability. Its as security is high. The assets do not require active management (5marks) 4.c A repurchase agreement is a sale of securities with an undertaking by the seller to repurchase the same securities a stipulated period of time at a price determined at the time of the sale. The essence of a repurchase agreement is to adjust the original maturity of a particular money market asset to suit the needs of an investor. The buyer is said to be making a “carry” or resale agreement or “warehousing” the particular financial asset. Repurchase agreements are generally entered into by financial institutions because the securities they wish to sell may not have the exact maturity desired by the purchaser. They may also be entered into to finance holdings of securities. This would tend to be done on an interest rate view. There are two types of repurchase agreements. The “open” agreement gives the creator or the purchaser the option of closing the agreement at any time. The closing would usually be the result of either an interest rate consideration or the purchaser requiring the cash. “Term” repurchase agreements are agreements that are entered into for a specific period, and do not offer the maker or the purchaser any options. As repurchase agreements are entered into in respect of specific financial assets, the denominations available are the same as those of the securities underlying the transaction. (5marks)
INVESTMENT%20-%20NOV%202012%20SOLUTIONS.docx