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IBBC CAPITAL ACADEMY / 2027

Corporate funding and collateralized repos

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Explain short-term choices using mechanisms and limitations.
  • Explain repo mechanics using mechanisms and limitations.
  • Explain long-term credit access using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Short-term choices

A corporation may use bank lines, commercial paper and trade credit for short funding; maturity matching and committed capacity matter when markets close.

Commercial paper can expose the borrower to refinancing risk; a backup line is useful only if its conditions allow access when needed.

Repo mechanics

A repo exchanges cash for securities with an agreement to reverse later; economically it resembles collateralized financing but legal characterization depends on the agreement.

A haircut reduces cash lent relative to collateral value; collateral price falls and margin demands can still create liquidity strain for both parties.

Long-term credit access

Investment-grade issuers often have broader unsecured market access than high-yield issuers, whose covenants, collateral and refinancing conditions can be more restrictive.

Secured borrowing can lower a lender’s loss exposure but encumber assets and subordinate other claims economically; assess the whole capital structure.

Formula and assumptions

Repo cash=collateral value×(1−haircut)

Original applied case: Corporate funding and collateralized repos

  1. Collateral market value is 10 million and the agreed repo haircut is 3%.
  2. Initial cash advanced=10×(1−0.03)=9.7 million.
  3. If collateral drops, the contract may require additional margin; the initial haircut is not a fixed loss guarantee.

Errors to catch

  • Do not assume: Short-term refinancing capacity is guaranteed.
  • Do not assume: Every backup line is unconditional.
  • Do not assume: A repo is an unsecured perpetual equity investment.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.