What are the primary reasons for taking an initial margin in a classic repo?
A) Counterparty risk and operational risk
B) Counterparty risk and legal risk
C) Collateral illiquidity and counterparty risk
D) Collateral illiquidity and legal risk

Question

Quizplus · Accepted Answer

The primary reasons for taking an initial margin in a classic repo are collateral illiquidity and counterparty risk. This helps protect the lender from potential losses in case the borrower defaults or the collateral becomes illiquid or loses value. Legal risk may also be a concern, but it is not a primary reason for taking an initial margin.

What Are the Primary Reasons for Taking an Initial Margin