Answer / ambika

Repo or Repurchase rate is the rate at which banks borrow
funds from the RBI to meet the gap between the demand they
are facing for money (loans) and how much they have on hand
to lend.

If the RBI wants to make it more expensive for the banks to
borrow money, it increases the repo rate; similarly, if it
wants to make it cheaper for banks to borrow money, it
reduces the repo rate.

Bank Rate

This is the rate at which RBI lends money to other banks
(or financial institutions)

The bank rate signals the central bank's long-term outlook
on interest rates. If the bank rate moves up, long-term
interest rates also tend to move up, and vice-versa.

Banks make a profit by borrowing at a lower rate and
lending the same funds at a higher rate of interest. If the
RBI hikes the bank rate, the interest that a bank pays for
borrowing money (banks borrow money either from each other
or from the RBI) increases. It, in turn, hikes its own
lending rates to ensure it continues to make a profit.

Answer / bloody idiot

A Bank has to keep/maintain 5% of its DTL in Cash form with
RBI. Similarly it maintains 25% (present) of its DTL in the
form of Govt. Bonds,secs with RBI.

REPO (Repurchase Option)
When Banks have shortage of funds to meet their lending and
operational task daily, they can exercise the Repo Window
and borrow from RBI against the GSecs (RBI repurchases the
GSecs thats why it is called REPO). Even if this is the
case RBI levies interest(Discount for buying back) on such
REPO lending and this is called REPO Rate.

Bank Rate
It is the rate which RBI charges while lending money to
Commercial Scheduled Banks.It is the ineterst rate payable
by Banks on ST borrowings from RBI. This influences LT
Lending rates of Commercial Banks as well since the Banks
try to recover the money lost due to hike in Interest rates
by recovering it from it's customers (Borrowers) thereby
increasing Interest Rates.

This can have serious impact on the money supply in the
Market since when Interests rates increase, Borrowers seek
other options of raising funds and thus Bank Lending (which
forms substantial shunk of Money supply - Money Market)
contracts thereby reducing the overall flow of money in the
Economy.

This can have distinct relation to Inflation also as a
reduction in money supply can reduce consumption and Demand
thereby reducing inflation.

RBI uses these measures to control Money Supply.

Answer / karthik

BANK RATE is the rate at which RBI lends to the commercial banks for a longer period.

REPO RATE is the rate at which RBI discounts the bills of commercial banks & provide short term credit to banks.
(here they come into an agreement that the bills would be purchased back by the commercial banks).

Answer / sudhir sharma

bank rate: (r) means the rate which rbi sales money ot the
comercial bank or in simple language comercial bank takes
loans from the rbi and pay "interest" its bank rate. bank
rate os long-term concept.


repo rate: rbi purchase securities by the govt and com.
banks and provide fund and charges intrest by the govt and
com. bank called repo rate. its short-term concept this is
part of open market operations (omo) (t tool for controling
money supply)

Answer / anurag

Repo Rate is clear in above answers.

Bank rate, also referred to as the discount rate, is the
rate of interest which a central bank charges on the loans
and advances that it extends to commercial banks and other
financial intermediaries. Changes in the bank rate are
often used by central banks to control the money supply.

Answer / ambica

repo rate is the discount rate at which a central bank (the
fed) repurchases government securities from the commercial
banks (BofA...), depending on the level of money supply it
(the fed) decides to maintain in the country's monetary
system.

Reverse repo is an arrangement where a dealer or broker
agrees to buy a security and sell it to a customer
(investor) at a higher price on a specified date.

Bank rate is basically prime rate set by the fed. This is
the rate the fed charges commercial banks to borrow money
on a short term (usually overnight) basis.

Banks work off of the spread. They give money to depositors
at 4% and turn around and lend that money to others that
want to buy a home or expand their business at 6-8% or
higher depending on the risk.

If they lend more money than they take in on a given day
they may have to borrow money from the fed on a short term
basis which would be the bank rate

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Sean Alicandri, a sophisticated investor who is both willing and able to take risk, has just noticed that Mid- West Airlines has become the target of a hostile takeover. Prior to the announcement of the offer to purchase the stock for $72 a share, the stock had been selling for $59. Immediately after the offer, the offer the stock rose to $75, a premium over the offer price. Such premiums are often indicative that investors expect a higher price could occur if a bidding was erupts for the company or if management buyout of the firm. Of course, if neither of these scenarios occurs, the price of the stock could fall back to the $72 offer price. In addition, if the offer were to be withdrawn or defeated by management, the price of the stock could fall below the original stock price. Alicandri has no reason to anticipate that any of these possibilities will be the final outcome, but the realizes that the price of the stock will not remain at $75. If a bidding war erupts, the price could easily exceed$100. Conversely, if the takeover fails, he expects the price to decline below $55 a share, since he previously believed that the price of the stock was overvalued at $59. With such uncertainty, Alicandri does not want to own the stock but is intrigued with the possibility of earning a profit from a price movement that he is certain must occur. Currently there are several three months put and all options traded on the stock. Their strike and market prices are as follows: Strike Price Market Price of Call Market Price of Put $50 $26.00 $0.125 55 21.50 0.50 60 17.00 1.00 65 13.25 1.75 70 8.00 3.50 75 4.25 6.00 80 1.00 9.75 Alicandri decides the best strategy is to purchase both a put and a call option (to establish a straddle). Deciding on a strategy is one thing; determining the best way to execute it is quite another. For example, he could buy the options with the extreme strike price (i.e. the call at $80 and the put at $50). Or he could buy the options with the strike price closest to the original $72 offer price (i.e. buy the put and the call at $70). To help determine the potential profits and losses from various positions, Alicandri developed profit profiles at various stock prices by filling in the following chart for each position: Price of the stock Intrinsic Value of the Call Profit on the Call Intrinsic Value of the Put Profit on the Put Net Profit $50 55 60 65 70 75 80 85 To limit the number of calculations, he decided to make three comparisons: (1) the purchase of two inexpensive options-buy the call with the $80 strike price and the put with the $60 strike price, (2) the purchase of the options with the $70 strike price, and (3) the purchase of the options with the price closest to the original stock price (i.e., the options with the $60 strike price). Construct Alicandri’s profit profiles and answer the following questions. 1) Which strategy works best if a bidding war erupts? 2) Which strategy works best if the hostile takeover is defeated? 3) Which strategy works best if the original offer price becomes the final price? 4) Which of the three positions produces the worst result and under what condition does it occur? 5) If you were Alipcandri’s financial advisor, which strategy would you advise he establish? Or would you argue that he not speculate on this takeover?

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