Prepays are loans which are collateralised before value date. The reason this is done is: *To facilitate the settlement of a loan in a market that is in a different time zone. E.g. In some cases, a bank may not have the required presence in a particular time zone to facilitate the settlement of same day collateral. In this case, a prepay is the only solution in order to get the loan settled on value date OR If the market has an early cut-off that would make collateralisation of the loan same day impossible E.g. If a trader in the UK books a trade to settle the following day in Japan, the trader may book this as a prepay loan to ensure the trade is collateralised and released that day. If this was not done, collateral would need to be called the next morning and settled in the market, before the Japan market closes that day. There would be a very short timeframe for getting collateral to cover the loan in time for settlement same day. (IBP-177 AGREED IN 2017)
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