Business and Personal Finance Dictionary

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• MARGIN
  
  (1) An amount of cash or collateral that a buyer or borrower must provide in excess of value owed to that buyer or borrower by a seller, lender or depositor. Ensures performance by the buyer or borrower. Initial margin is posted at inception. Variation margin is the amount of any additional margin needed to correct deficiencies in the currently posted margin. (2) The amount by which the coupon rate for a floating- or variable- rate financial instrument differs from the defined index for that coupon rate. For example, if a floating-rate note requires that the coupon rate be set at 250 basis points above 30-day LIBOR, the gross margin is 250 basis points. Can also be the amount added to, or subtracted from, the index in determining the instrument's fully indexed rate. Investors in adjustable rate mortgage-backed securities (MBSs) receive a coupon rate that is lower than the fully indexed rate because the cost of servicing, the servicing spread, is deducted. The gross spread minus the servicing spread is called the net margin or the security margin. See index and servicing. (3) In a firm’s profit and loss statement, margin is the difference between sales price and the cost of goods sold. It may be expressed as a dollar quantity or as a percentage of the cost of goods sold.
  
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