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What is the purchase price

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In REPO markets a haircut A. What is the purchase price (i.e. how much Graeme has borrowed in the repo market)?

Is the difference between the initial market value of an asset and the purchase price paid for that asset at the start of a repo transaction. A haircut is expressed as the percentage deduction from the market value of collateral. Suppose that LuLu Bank has $200 million in excess reserves and wants to invest them in the repo Market. Alec Open Fund needs about $100 million to meet to overnight cash needs, and has treasury-bills worth $100 million (market value). The general-collateral repo rate 1.10% (annual rate compounded daily, based on 360 days) and the required margin (haircut) is 2%. If Alec and LuLu engage in a REPO transaction, so Alec borrows the money from LuLu and pledges the T-Bills as collateral:

B. How much interest would Alec have paid for a one-day loan (interest is paid on the market value of the collateral)?

Reference no: EM132766703

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