A program accepts 72% of the nominal value of an MTN (for very large quantities, the price may be below 50%) and a sale price of 80% to the covenantee. However, the difference of 8% points is not yet the profit of the program. This profit is first shared with the Federal Reserve Bank (FED) at a rate of 50:50, where deviations are also possible. Then, after deducting the bank charges, the program usually shares it with the investor at a rate of 30:70, the program takes 30% and the investor takes 70%. Excluding bank charges, the investor has 2.8% of the nominal value. These values are not entirely impossible.
Assuming 40 trading weeks per year, the investor earns 112% per annum. That means, two transactions per week and 224% per year.
In fact, in MTN this trade is done several times a day (3-4 times a day or even more) for 40 bank weeks per year. For a total of 40 bank weeks of 4 trading days, 2 transactions per 2% commission per transaction, a total yield of 640% is derived, based on the capital provided (blocked fund). In fact, the total return is higher.
The secret lies in the rate of turnover, that is to say the speed of the same investor fund is used and returned repeatedly. Programs that buy back property and sell back immediately to export to the secondary market are the fastest operating performances.
The profits are paid to the investors every month. The investor determines the account to which the revenue will be transferred. Program banks offer a discontinuation of revenue for a deduction. The investor is solely responsible for the correct taxation of the investment income.
The process that we explained above is a short simplification. In fact, the course of this trade is much more complex.
