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As far as I understand an overnight loan is a loan that is settled the next day.

Who are the entities that would find it useful to take a loan just for a day? and, what would they use an overnight loan for?

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  • Main users of overnight lending are banks. Banks have large in- and out-flows from customers on a daily basis. They typically borrow to meet a temporary outflow.
  • There is a term premium for borrowing at longer terms. By implication, borrowing overnight is theoretically the cheapest financing cost. Financial entities will borrow overnight to finance portfolios.
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