PRIVATE PLACEMENT FOR HIGH RETURN
The people tell that the Private Placement has realized very high return ("miraculous profit"). Some Clients or traditional Bankers smile in saying: "That´s miracle! There is no Père Noel in finances, mostly in Banks!". Some people are often repeating: "That´s the Fed! We have to follow the Fed´s Rules! The Fed can give Paradise but the Fed may become Lucifer!"
In this document, we try to reply theorically to these opinions:
a) MIRACULOUS PROFIT IS NOT A MIRACLE
b) MECAHISNM OF ISSUANCE & DISTRIBUTION CHANNELS OF FED
A) MIRACULOUS PROFIT IS NOT A MIRACLE
High profit depends on three factors: amunt of capital, interest rate and time of investment. PPP doesn´t make miracle to have high interest rate but utilizes readily feasible banking techniques to realize trads in normal conditios of market interest rates. There is no miracle if we understand these banking tecniques. Indeed. the people commetn that this is a miracle because they compare the high profit with a very small amount of initial investment.
Again, three contributing factors to profits are: interest rate, capital and time of investment. Interest rate in PPP is the rate received by each Trade of bank instruments. In commercial competitive market, it´s absolutely not frequent to obtain exceptional high price for trades. Bank Trader in PPP doesn´t take much attention in activating this aspect of high prices.
Bank traders particulary manipulate financial techniques to act on two following contributing factors to profits: the amount of capital and the time of investment. The technique of financial multiplier is used to swell the capital reserved to a precise trade; the techique of reduction of time for realization of each trade gives the possibility to obtain profit from the real time of investment as per from a very long period of investing funds in the future.
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