Fixed income instrument

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Fixed income instrument

Postby chandniwadhwani92 » Fri Dec 19, 2014 5:53 pm


purchasing floating ate debt is attractive to some institutions that have variable rate source of funds (liabilities) such as banks.This allows these institutions to avoid balance sheet effects of interest rate that would increase the cost of fund but leave the interest rate income at a fixed rate.Value of bond(asset) held would fall in value while the value of their liability would b much less affected
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Scheswer Fixed income

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Fixed income instrument

Postby edupristine » Sat Dec 20, 2014 7:06 am

Banks make money by borrowing and lending so they need a cash anytime or they can have a cash deposit anytime. So to ignore the interest rate fluctuations they invest in floating rate debt this will automatically adjust the balance sheet transactions.

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