TeachMeFinance.com - explain carrying charges
carrying charges -- (1) the part of the finance charge levied by most creditors to cover administrative costs of loaning money, such as billing, statement mailing costs, and bad debt losses. (2) costs incurred in order to hold title to property that is idle, non-productive, or in an interim use. (3) charges added to the price of goods or services to compensate for deferred payment. (4) fees charged by investment brokers for handling margin accounts.
Carrying charges -- A designation for the interest paid by
buyers of stocks on the money represented by the difference
between the margin deposited and the purchase price of the
stock. Sellers of short stocks as a rule have not to pay
interest charges ; only buyers have to pay such charges.
Grain carrying charges consist of storage, interest and
insurance. They are represented by the excess of the price for
future delivery over the cash price (the price for immediate
delivery). Illustration: If wheat for a future delivery is
4 cents higher than cash wheat (wheat for immediate delivery)
the 4 cents represents warehousing and insurance up to
the expiration of the contract. If the cash market (price)
declines I cent before the termination of the contract the short
seller makes 5 cents profit; if it remains stationary he makes
4 cents ; if it advances 3 cents he still profits I cent.
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