CJ Jouhal
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An Entrepreneur that leverages technology to grow and enhance a business. A Technologist that understands business and entrpreneurship and makes technology facilitate the business model.

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Interest Rate Repurchase Agreements

A pension contract has a higher interest rate than many securities transactions because of the short time frame. This interest rate is the price paid by the seller for a short-term loan to the buyer. In 1982, the failure of Drysdale Government Securities resulted in a loss of $285 million for Chase Manhattan Bank. The result was a change in the use of accrued interest in calculating the value of pension securities. That same year, the failure of Lombard-Wall, Inc. led to a change in federal insolvency laws with respect to deposits. [7] [8] The failure of ESM Government Securities in 1985 led to the closure of the Home State Savings Bank in Ohio and a rush to other banks insured by the Ohio Deposit Guarantee Fund. The failure of these and other companies led to the passage of the Government Securities Act of 1986. [9] The buy-back contract, or “repo,” market is an opaque but important part of the financial system that has recently attracted increasing attention. On average, $2 trillion to $4 trillion in pension transactions are traded every day — guaranteed short-term loans. But how does the pension market work, and what about it? In a repo, the investor/lender provides cash to a borrower, the loan being secured by the borrower`s collateral, usually bonds. If the borrower becomes insolvent, the guarantee is granted to the investor/lender. Investors are generally financial enterprises such as money funds, while borrowers are non-intrusive financial institutions, such as investment banks and hedge funds.

The investor/lender calculates an interest rate called “pension rate” $X the granting of loans and recovers a higher amount $Y. In addition, the investor/lender may demand guarantees that require a value greater than the amount he lends. This difference is the “haircut.” These concepts are illustrated in the diagram and in the equations section. If investors are at greater risk, they may charge higher pension interest rates and demand higher reductions. A third party may be involved to facilitate the transaction; In this case, the transaction is called a “tri-party deposit.” [3] There are three main types of pension transactions.

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