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Notes
- 1.
The structure only works if the financial institution pays withholding tax at a lower rate than the investor.
- 2.
See Schofield and Bowler (2011) for more details on this concept.
- 3.
See Sect. 4.4.2 for an explanation.
- 4.
$10,500,000 × (3.00% − 0.20%) × 31 / 360 = $25,317.
- 5.
This ignores bid-offer spreads and all other transaction costs.
- 6.
A CFD can also be structured to reference a sector or an equity index.
- 7.
Defined here as the ability to use a small amount of money to control a larger exposure.
- 8.
These fees are payable as it is likely that the bank will short sell the shares as a hedge. The investor is therefore financing the bank’s associated securities lending fees.
- 9.
An investor buying a share on or after the ex-dividend date will not be eligible to receive the dividend.
- 10.
See Sect. 2.8 for an example.
- 11.
This is an over simplistic argument as it is possible for a share to be under- or overvalued irrespective of its price.
- 12.
See Sect. 2.12.
Bibliography
Combescot, P. (2013) Recent changes in equity financing Presentation to the Society of Actuaries
Schofield, N.C., & Bowler, T. (2011) Trading, the fixed income, inflation and credit markets: a relative value guide Wiley Finance Series
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Schofield, N.C. (2017). Equity Swaps. In: Equity Derivatives. Palgrave Macmillan, London. https://doi.org/10.1057/978-0-230-39107-9_10
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DOI: https://doi.org/10.1057/978-0-230-39107-9_10
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