O'Reilly logo

Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Marking-to-market and margin calls

In order to enter a financial future, you have to deposit a margin (a guarantee) with the exchange. At the end of every day, the terms of the contract are adjusted (marked-to-market) to the price prevailing on the future exchange.

For instance, if the price goes up to 91, e-Bank will now have to pay 91 (instead of 90). In compensation, e-Bank will receive a cash payment of 1. In reverse, Alpha Bank will have to use its margin to pay the loss of 1.

Profits and losses are settled on a daily basis (daily margin calls) and the losing party is forced to use its margins to finance the loss, which helps to significantly reduce the risk of default for the exchange and for the market participants. To remain in the market, ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required