wholesale borrowing at 3% rate ?
- Thread starter bubbleroo
- Start date
bubbleroo,
Where did you hear this??? I think many of us would be interested if what you overheard is correct.
Doesn't sound right to me. Must be some pretty strict rules on what they will lend on, otherwise developers would be using it to develop and flick.
Can you find out from your source?
Cheers
BUNDY
Where did you hear this??? I think many of us would be interested if what you overheard is correct.
Doesn't sound right to me. Must be some pretty strict rules on what they will lend on, otherwise developers would be using it to develop and flick.
Can you find out from your source?
Cheers
BUNDY
Hiya
Thats wholesale on the base RBA rate of 4.5 % :O)
3 %ish funds are around using Japanese yen and USD/HKD loans, but they have lots of condtions and attendant risks with the most notable ones being currency fluctuations AND margin calls.
ta
rolf
Thats wholesale on the base RBA rate of 4.5 % :O)
3 %ish funds are around using Japanese yen and USD/HKD loans, but they have lots of condtions and attendant risks with the most notable ones being currency fluctuations AND margin calls.
ta
rolf
RBA rate = Reseve Bank of Australia Rate.
This is the rate at which the govt borrows money from banks to meet its expenses and likewise the rate at which the reserve will lend to banks.. It is also known as the Reserve rate.
When they say that "the Reserve Bank is meeting to set interest rates" they are refering to the RBA rate.
This is the risk free rate as it is an overnight (or short term) rate free from inflation risk and free from default risk (the govt can always repay as it can just print more money).
I am not Rolf, but I trust that this answers your question.
cheers,
RightValue
This is the rate at which the govt borrows money from banks to meet its expenses and likewise the rate at which the reserve will lend to banks.. It is also known as the Reserve rate.
When they say that "the Reserve Bank is meeting to set interest rates" they are refering to the RBA rate.
This is the risk free rate as it is an overnight (or short term) rate free from inflation risk and free from default risk (the govt can always repay as it can just print more money).
I am not Rolf, but I trust that this answers your question.
cheers,
RightValue
Bubbleroo,
The answer is in theory yes, provided you can find someone to lend the money to you at that rate.
The real answer is no. The RBA is the Governments bank, it only deals with accredited financial institutions.
As for the theoretical yes (above) why would anyone want to lend to you with a much higher risk of default than to the Govt with a zero risk of default.? Remember that risk and return are correlated for taking a higher risk a lender will want a higher rate.
I hope this helps,
cheers,
RightValue
The answer is in theory yes, provided you can find someone to lend the money to you at that rate.
The real answer is no. The RBA is the Governments bank, it only deals with accredited financial institutions.
As for the theoretical yes (above) why would anyone want to lend to you with a much higher risk of default than to the Govt with a zero risk of default.? Remember that risk and return are correlated for taking a higher risk a lender will want a higher rate.
I hope this helps,
cheers,
RightValue
not so bad if you don't have to pay back capital untill the end of the loan.
This gets off the track a bit, but there was a point made earlier in this thread which requires clarification.
The RBA DOES NOT borrow money from commercial banks.
The RBA, like any central bank, is the ultimate source of liquidity for the Australian financial system.
That is, the bank is the ultimate supplier of CASH (liquidity).
Or as some would say, "the lender of last resort".
Or to put it even another way - the RBA is the bank the banks bank with.
The RBA doesn't need to borrow cash from commercial banks - however - banks are required to have funds deposited with the RBA.
These funds are held in what are called "Exchange Settlement Accounts" (ESA's).
For prudential reasons, each licensed commercial bank in Australia is required to keep a certain amount deposited with the RBA - the amount actually changes from day to day.
The bank pays a small amount of interest in return - but this is not how interest rates are set.
At the end of each day there is a great deal of interbank trading whereby one bank owes another money, etc, etc.
The money used to settle these IOU's comes from the ESA's.
As a part of being a bank in Australia you have to pay your dues at the end of each day - using the money deposited in your ESA.
However, the RBA controls the ESA's.
The bank uses this control to implement monetary policy.
To increase interest rates the RBA withholds funds and forces the banks to go into the money market to get the funds they need to pay the daily debts as required. This increases the demand for money in the money market and in doing so the banks bid up the cash rate.
To decrease interest rates the RBA releases more ESA funds than are needed. This will usually mean that the commercial banks will then invest this money in the money market - by increasing the supply of money into that market, interest rates fall.
Apologies for the length.
MB
The RBA DOES NOT borrow money from commercial banks.
The RBA, like any central bank, is the ultimate source of liquidity for the Australian financial system.
That is, the bank is the ultimate supplier of CASH (liquidity).
Or as some would say, "the lender of last resort".
Or to put it even another way - the RBA is the bank the banks bank with.
The RBA doesn't need to borrow cash from commercial banks - however - banks are required to have funds deposited with the RBA.
These funds are held in what are called "Exchange Settlement Accounts" (ESA's).
For prudential reasons, each licensed commercial bank in Australia is required to keep a certain amount deposited with the RBA - the amount actually changes from day to day.
The bank pays a small amount of interest in return - but this is not how interest rates are set.
At the end of each day there is a great deal of interbank trading whereby one bank owes another money, etc, etc.
The money used to settle these IOU's comes from the ESA's.
As a part of being a bank in Australia you have to pay your dues at the end of each day - using the money deposited in your ESA.
However, the RBA controls the ESA's.
The bank uses this control to implement monetary policy.
To increase interest rates the RBA withholds funds and forces the banks to go into the money market to get the funds they need to pay the daily debts as required. This increases the demand for money in the money market and in doing so the banks bid up the cash rate.
To decrease interest rates the RBA releases more ESA funds than are needed. This will usually mean that the commercial banks will then invest this money in the money market - by increasing the supply of money into that market, interest rates fall.
Apologies for the length.
MB
