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Finance: What are Hard Dollars v Soft Dollars? 4 Views
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Description:
Using "soft dollars" is really a way of saying "bartering," where a firm may, for example, trade shares in return for inventory, rather than using cash.
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Transcript
- 00:00
Finance a la shmoop what are hard dollars versus soft dollars? okay can we
- 00:09
make the joke about soft dollars that took viagra no okay all right we won't [Dollars take pills of viagra]
- 00:13
or maybe we just did okay well whatever so there really is such a thing as soft
- 00:19
dollars in fact they apply to the manner in which stock brokerages and other
- 00:23
service vendors to the buy side are paid on Wall Street well on any given trade
Full Transcript
- 00:29
there are somewhere between three and twenty different sellers at the price [Sellers appear]
- 00:32
the same price like a mutual fund wants to buy a million shares of Disney at 103.34
- 00:37
and yes for a stock like Disney, Goldman is selling Morgan is
- 00:41
selling JP Morgan is selling in a gazillion other small banks all around
- 00:45
the world are selling all at the same exact price well the mutual fund wants
- 00:49
to do the trade in one block of a million shares not doing little business
- 00:53
with everyone so they're gonna trade with one bank why would they choose any
- 00:56
one bank over another? well usually the quality of the banks research or values
- 01:01
add contribute to who wins that million share trade with the three center share
- 01:06
Commission for a nice thirty grand pay day but what if the Wall Street mutual fund [Stock market graphs appear on computer screens]
- 01:10
wanted to purchase specialized trading computer terminals from Bloomberg well
- 01:15
why wouldn't Bloomberg begin their own trading operation trading stocks
- 01:19
brokering them and selling them and all that stuff with very little incremental
- 01:24
capital cost to Bloomberg above what they already do for a living and then
- 01:28
they themselves Bloomberg offers a million shares of Disney and 103.34
- 01:32
Well the mutual fund wants to buy 30 grand worth of computer [Computer terminals appear]
- 01:36
terminals for its traders and it would prefer to not have to write a check in
- 01:40
cash to buy those so in fact common practice on Wall
- 01:44
Street is to use yes soft dollars which is kind of another
- 01:48
word for barter where in the Wall Street firm trades the trade of those million
- 01:53
shares of Disney to Bloomberg in return for the $30,000 worth of computer
- 01:59
terminals they soft dollar purchased them and had they paid cash it would
- 02:04
have been called a hard dollar transaction got it and if your dollars
- 02:07
are too hard well may we recommend a better moisturizer [Stack of cash with a tube of moisturizer appears]
- 02:11
soft dollars, hard dollars...
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