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June 5, 2012

Margins, Liquidity and the Cost of Hedging

The paper argues that requiring commercial businesses to post margin does not increase the cost of hedging. In fact, the paper states that the costs for such a transaction is the equivalent for those trades that impose margin as well as providing for a line of credit. John Parsons of MIT and Antonio Mello of the University of Wisconsin School of Business authored the paper, which also details how accounting rules and bank regulators treat the implicit credit charges embedded in these trades differently than a conventional bank loan. 

Read the paper here



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