LING 530 Lecture Notes - Lecture 15: Prime Rate
27 Jun 2018
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March 27, 2018
We spent the first 30 minutes of class filling out the table – posted online.
A facility is an ability to borrow – each facility is a distinct borrowing
A credit is the ability to make borrowings
There must be an amount in the bank’s capital to support their loans
oEvery time you make loans, there must be a portion of capital to support that loan
What does not revolving/non-revolving mean?
oA student with a thick accent answered this question and I didn’t understand her
answer
Financing has a duration
oMost financing is there to re-finance something already in place
Closing date – when all of the conditions are met
The maturity date is the earlier of 3 years or before if there is an event of default
oMaturity date = a date that can be accelerated if there’s a destruction of the hope
that the lender’s will be repaid
Forms of advances bear interest at a variable rate
oThe prime rate or base rate can fluctuate from month to month
He’s talking about how in the 1980s when he was in law school, prime rate
was at 19% (this was the base rate) but this is what credit cards cost today
oLIBOR is a form of borrowing in USD, banker’s acceptance is a form of borrowing in
Canadian dollars
They are fixed rate advances – each of Canadian banker’s acceptance loans
and LIBOR loans are for periods of time! these are short term borrowings
available for 30 days or maybe 90 days.
During the period that you select, whatever the period is that you select, the
interest during that period is fixed rate. So you know when you take a LIBOR
loan how much interest you will end up paying during the period.
Whereas when you take a base rate loan you don’t know this!
oNobody will know for certainty what the prime rate will be in
90 days
So LIBOR loans provide the borrow with certainty of what the interest
rate will be in a short period of time (this is something that prime rate
loans do not provide – they are variable rate loans!)
So LIBOR loans are fixed loans for short periods of time
oLook at the definition of LIBOR loan/rate – it says that when the request for a
borrowing is made, and technically this is 2 days before the actual borrowing is
dispersed, whatever rate applies for the period you selected will be your rate for
that period. So if you request another LIBOR loan another day it will be another rate!
March 28, 2017
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
We spent the first 30 minutes of class filling out the table posted online. A facility is an ability to borrow each facility is a distinct borrowing. A credit is the ability to make borrowings. There must be an amount in the bank"s capital to support their loans: every time you make loans, there must be a portion of capital to support that loan. What does not revolving/non-revolving mean: a student with a thick accent answered this question and i didn"t understand her answer. Financing has a duration: most financing is there to re-finance something already in place. Closing date when all of the conditions are met. Forms of advances bear interest at a variable rate: the prime rate or base rate can fluctuate from month to month. They are fixed rate advances each of canadian banker"s acceptance loans and libor loans are for periods of time! these are short term borrowings available for 30 days or maybe 90 days.
