Simple question. What's your answer? Thanks.
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Is the repo a derivative? watch
- Thread Starter
- 22-02-2016 21:40
- 22-02-2016 22:42
yes, it's a derivative product. it's essentially a contract tool used to transfer financial products for cash for a short period of time, with the intention of repurchasing them. simply put it's something of a secured loan, where the value of the financial products are cummulatively higher than the cash amount recieved (haircut), for extra insurance against the combined portfolio of assets's variance.
- 23-02-2016 03:02
I suppose you could call it a derivative because the payoff to the lender could be dependent on the value of the collateral so its value is based on the price of some underlying technically making it a derivative, this would however mean that any loan with collateral was a derivative. I've never heard someone refer to a mortgage as a derivative.