Filter by Categories
Accounting
Banking

Financial Analysis




Refinancing Position


In general, a refinancing position constitutes a new financing position that is taken rolling over the funds that have reached maturity date. More specifically, a refinancing position comes into play when an entity’s asset holding period is longer than its corresponding liability period. For example, an entity holds an asset maturing in 6 months, while its corresponding liabilities have a term of 3 months. In such a situation, an entity would expect to have its financing maturing earlier because its liabilities or a portion of these liabilities mature earlier than its assets.

This situation arises, for example, when a bank mobilizes funds (accepts liabilities) by issuing certificates of deposits (CDs) for a shorter maturity than its assets. The refinancing decision will have to be tackled when such liabilities mature. In reality, the net position would matter: it is figured out by aggregating the maturities and amounts for all assets and liabilities. In this case, the bank would have to protect itself against unaccounted-for increases in financing costs- e.g., by selling futures contracts on T-bills.

The opposite is true in the case of a reinvestment position.



ABC
The financial analysis of companies is essentially undertaken with the aim to assess their performance in light of their objectives and strategies ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*