Using the spot and forward markets to borrow at the implied repo rate entails
A) Selling the spot asset and buying it forward.
B) Buying the spot asset and selling it forward.
C) Selling the spot today and buying it back at the then-prevailing spot price in the future.
D) Buying the spot today and selling it at the then-prevailing spot price in the future.

Question

Quizplus · Accepted Answer

Selling the spot asset and buying it forward is a strategy that effectively locks in the borrowing cost at the implied repo rate. This involves selling the asset in the spot market to obtain funds and simultaneously entering into a forward contract to buy back the asset at a future date, which allows the seller to finance the holding of the asset at a known cost.

Using the Spot and Forward Markets to Borrow at the Implied