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Old 11-21-2001, 04:45 AM
question question is offline
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I am not quite understand how the auction market works. Can anyone tell me how it work? Also, how does the "Single-price" work? Why do all bidders award at the higest yield (lowest price) not the highest price? In this way, bidders will only offer low price not high price, which is the opposite of a fair market, i.e. only the highest price will get?
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Old 11-21-2001, 01:16 PM
Exam Slave Exam Slave is offline
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Since this has been used in MC questions, it's of some importance. It can be used in a WA question, but I think there are more difficult areas.
The stop-out yield is not the highest yield bid. It is determined as follows:
1. Treasury decides how much to sell; say $10 million.
2. Non-Competitive bidders are in, without regard for the yield. Say $4 million in non-competitive bids are tendered.
3. That leaves $6 million to the competitive bids. Suppose there are five competing bids of $2 million each.
4. Only three competitive bids are accepted. The two bids with the highest yield are out.
5. The highest yield of the remaining three competitive bids is the yield for all $10 million.

There is a risk of being shut out and having to pay a higher price for these securities. So, the competitive bidders have to think a little more.
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Old 11-21-2001, 02:42 PM
aNoNo aNoNo is offline
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ES - thanks for the clear explanation.

Have you been through the Course 6 material before? You seem to be on top of things in mid-November for a spring exam.
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Old 11-21-2001, 03:17 PM
Exam Slave Exam Slave is offline
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Back to the coal mines.
I have no past, I have no future. I am, "Exam Slave."

Best I can do on my 5-second bathroom break.
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