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ADNEOM Benelux Training. Repos. Repos Repo or Sale and Repurchase Agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date.
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ADNEOM Benelux Training
Repos Repos Repo or Sale and Repurchase Agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. - The repurchase price should be greater than the original sale price, the difference effectively representing interest. In the Repo, a counterparty borrows cash at a rate of interest established by the parties, and gives "commercial paper" as collateral to the other counterparty. Thus, the other counterparty receives (or borrow) the "commercial paper" against a cash amount. At the due date of the operation, the "commercial paper" and the cash (plus interest) is returned to each counterparty.
Repos To mitigate this risk, repos often are over-collateralized as well as being subject to daily mark-to-market margining (i.e. if the collateral falls in value, a Margin call can be triggered asking the borrower to post extra securities). Conversely, if the value of the security rises there is a credit risk for the borrower in that the creditor may not sell them back. If this is considered to be a risk, then the borrower may negotiate a repo which is under-collateralized. In practive, each counterparty calculate his margin call. Then they match the result. If the calculated margin call is different, they open a dispute to settle it.
Foreign Exchange FOREX Currency trading refers to this particular deal when an investor doesn't buy a financial instrument but a foreign currency. Currency trading is known as "forex trading“ (Foreign Exchange) This is the largest market in the world.
Foreign Exchange Those codes are composed of 3 letters. The 2 first letters identify the country, the third letters indicates most of the time the name of the currency.
Foreign Exchange Currency trading is based on pairs. The symbol for a currency pair will always be in the form ABC/DEF. - Buying the pair EUR/USD means buying the EUR and selling the USD - Selling the pair EUR/USD means selling the EUR and buying the USD. EUR/USD = 1.4585 means that 1 Euro is equal to 1.4585 USD. GBP/USD = 1.6575 means that 1 GB Pound is equal to 1.6575 USD. USD/CHF = 1.0250 means that 1 USD is equal to 1.0250 Swiss Francs. You want to deal the Swiss franc against the euro and you do not have a EUR / CHF quote. Take the EUR / USD and USD / CHF. By combining these two parities, you get a EUR/CHF 1.4950 worth (1.4585 x 1.0250 = 1.4950) So, you can exchange 1 euro against 1.4950 Swiss Francs.
Foreign Exchange Bid and ask quotes The buy price, called the bid is the price the trader (spotter) pays to buy the currency. The sell price, called ask, is the price at which the trader sells the currency. Example of bid & ask quotation EUR/USD: 1.4550/1.4552 The dealer makes this price : buys 1 EUR against 1.4550 USD and sells 1 EUR against 1.4552 USD. This quote multiplied by the amount of Euro will give the amount in USD. Example: if the price is valid for 10mios EUR, the trader: - Will pay 14,550,000 USD to 10,000,000 EUR; - Will receive 14,552,000 USD to sell 10,000,000 EUR. This difference is called the spread. It is expressed in basis points (bips). The basis point is equal to 0.01% or 0.0001.
Foreign Exchange Other transactions types on FOREX Spot : A spot transaction is a two-day delivery transaction. Forward : One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. Swap : The most common type of forward transaction is the swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. Future : Futures are standardized forward contracts and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. Option : Foreign exchange option are also possible
Commodities Commodities The term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. The market treats it as equivalent or nearly so no matter who produces it. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product. Soft commodities : goods that are grown like sugar, coffee, soybeans, wheat, orange juice, rice, … Hard commodities : goods that are extracted through mining like iron, oil, coal, gold, silvern, palladium, …
Commodities Commodities Exchanges Chicago Board of Trade (CBOT) Chicago Mercantile Exchange (CME) Dalian Commodity Exchange (DCE) Global Board of Trade (GBOT) Euronext.liffe (LIFFE) Kansas City Board of Trade (KCBT) Kuala Lumpur Futures Exchange (KLSE) London Metal Exchange (LME) New York Mercantile Exchange (NYMEX) National Commodity Exchange Limited (NCEL) Multi Commodity Exchange (MCX) International Indonesian Forex Change Market (IIFCM) Marché à Terme International de France (MATIF)
Commodities • Electricity Market • In Belgium, the electricity market is the BELPEX (Belgian Power Exchange) • Electricity is good that cannot be stocked and that is consumed as it is produced. So participants must have a physical access to the Elial Hub for the delivery. • Highly volatile market that have its own mathematical rules • Main rules : • Trading by blocks of 0,1 MWh during 1 hour. • Trading 7/7, 24/24 • Each block is traded until 5 minutes before delivery • Continuous trading for blocks for the next 48 hours • 1 hour auction phase per day for the next 14 days
Commodities • Oil • Crude Oil Classification : • Light vs Heavy Crude = density classification. Light crude are easier to refine • Sweet vs Sour Crude = sulfur (impurities) percentage. Sour crude have more sulfur and is more expensive to refine • Benchmark Blends = regional blends characteristics like Brent Blend (north sea), West Texas Intermediate (US), Dubaï (Persian Gulf), OPEC Basket (Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, Venezula)
Commodities Spot Prices vs Furture Prices The main characteristic of commodities is that they are deliverable goods. As the physical delivery of oil barrels need some logistic, the spot price is in fact the current trading price of the next future contract that will come due. This means that speculators don’t have the logistic to stock thousands of barrels. So if a firm speculate, at the end, it MUST resell the oil on the market to companies that are really use it. USD Fluctuations influence Oil Price As the price of oil is in USD, it is pegged to the dollar. Strong dollar means lower prices, in dollar, for oil. And weak dollar, means more dollar must be spent to purchase the same amount of oil
Commodities • Supply shocks • Production cuts : embargoes, OPEC production limitation, etc. • Violence against producers : geopolitical events, attacks against pipelines, drilling rigs, etc. • Weather : hurricane (damages on offshore platforms) • Transportation bottlenecks : issues with pipelines
Commodities Peak Oil and Declining Production The Oil peak means that half of the oil has been extracted. So this no theory but this is factual. We don’t know when is the peak. We will probably see it after a few years. For many analysts this means that as supplies decline, prices will rise.
