Float

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The Australian  3 hrs ago  Comment 
INVESTMENT banks, lawyers and accountants working on the Medibank privatisation are set to share in a fee bonanza of more than $23m.
The Australian  4 hrs ago  Comment 
THE federal government could reap more than $5 billion from the privatisation of Medibank Private, according to its prospectus.
BBC News  Oct 17  Comment 
Shares in luxury shoemaker Jimmy Choo rise on their London market debut after stepping out at the lower end of their pricing range.
Financial Times  Oct 16  Comment 
Mounting concern over continued slide in the currency
Reuters  Oct 16  Comment 
Luxury shoemaker Jimmy Choo [IPO-JIM.L] is expected to set its London flotation price at 140 pence a share, the bottom of its indicative range, two sources familiar with the...
The Australian  Oct 15  Comment 
PRE-REGISTRATION interest in the Medibank Private float, estimated to be worth over $4bn, has exceeded expectations, the government said today.
Times Online  Oct 15  Comment 
One of Britain’s leading challenger banks yesterday became the most prominent victim of the collapse in global stock markets as...
guardian.co.uk  Oct 13  Comment 
Luxury shoemakers new share price expected to value firm at £620m rather than £700m as FTSE fall spooks investors Luxury shoemaker Jimmy Choo is facing the prospect of a lower flotation price for its shares as market turbulence hits companies...
The Australian  Oct 10  Comment 
SHARES in the digital billboard company APN Outdoor have been priced at $2.55 each, taking the company’s market capitalisation to $425 million.




 
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The float refers to profits earned by a financial institution on assets that do not belong to that institution, but are held in custody for a client or other purpose. The float is an important source of profitability in a number of industries, such as:

  • Retail banking: In the case of retail banking, customers' checking accounts often earn little or no interest. However, the bank can collectively invest the money its customers have deposited in higher-yielding investments such as mortgages. The bank then earns the difference between the interest paid on the mortgage and the interest paid to customers with deposits in checking accounts.
  • Insurance: The float refers to the time period between when premiums are collected and claims paid out. During this time, insurers invest the premiums and generate returns. Legendary investor Warren Buffett of Berkshire Hathaway (BRK) was originally attracted to the insurance business since he could use low-cost float to earn higher returns on his successful investments.
  • Retail Brokerage: In recent years, stock brokerage firms (particularly E*TRADE Financial (ETFC)) have made money by investing cash left in client trading accounts and earning a float on these assets.

===Ways that financial institutions earn , interest rates rise when loans are longer-term, to compensate the lender for tying up money and making it inaccessible (this difference in interest rates is known as the Yield Curve. For example, a savings account that allows you to withdraw money at any time would pay a small interest rate, but a CD that leaves you unable to access your money for a period of months or years would pay a higher rate. While an individual bank customer might add or withdraw money unpredictably, the bank as a whole can generally count on having stable deposits across all its customers. This allows the bank to pay short-term interest on checking accounts, but then earn higher, long-term interest on these deposits by lending it out for long-term loans (such as mortgages, which typically last 30 years).

  • Assuming risk. By pursuing riskier investments, a financial institution can earn greater returns on assets on deposit.
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