Is factoring a general term for selling CDOs?

[Enlighten_me]

Hi! I just started with corporate finance and read about factoring. It is defined the sale of accounts receivable at a discount. I havent really read much about CDOs so forgive my ignorance. I am just wondering whether it is the sale of CDOs is factoring?

[S2000magician]

I’ve never heard of factoring referring to selling CDOs.

[Enlighten_me]

@S2000magician

I’ve never heard of factoring referring to selling CDOs.

I guess I thought wrong. What about repurchase agreements? Is that what happens when an individual goes to a pawnshop?

[BullishBear_Finance]

Not too familiar with the exact mechanics of a pawnshop but here’s an example of a repurchase agreement:

Company A (borrower) sells securities to Company B (lender) for $100 with an agreement that Company A will repurchase the securities in six months for $101. This effectively represents a loan with the higher repurchase price representing $1 of interest.

A repurchase agreement is very similar to a secured loan with the sold securities serving as the collateral.

BullishBear Finance

[Topperharley]

@Enlighten\_me

@S2000magician

I’ve never heard of factoring referring to selling CDOs.

I guess I thought wrong. What about repurchase agreements? Is that what happens when an individual goes to a pawnshop?

Exactly. Just watch a few episodes of Pawn Stars and you should be well equipped for the exam.

[Enlighten_me]

@BullishBear

Not too familiar with the exact mechanics of a pawnshop but here’s an example of a repurchase agreement:

Company A (borrower) sells securities to Company B (lender) for $100 with an agreement that Company A will repurchase the securities in six months for $101. This effectively represents a loan with the higher repurchase price representing $1 of interest.

A repurchase agreement is very similar to a secured loan with the sold securities serving as the collateral.

BullishBear Finance

Is it necessary for the collateral to be securities?