Which of the following statements is true regarding repurchase agreements?

Question

Quizplus · Accepted Answer

Repurchase agreements, also known as repo agreements, are short-term loans in which one party sells securities to another party and promises to repurchase them at a higher price at a later date. The securities used as collateral in repo agreements are typically Treasury bills or other highly liquid government securities. Therefore, statement C is true. The maturity of repo agreements is typically short-term, usually ranging from overnight to several weeks, so statement A is false. Repo agreements are secured forms of borrowing, as they are backed by the collateral provided, so statement B is false. Finally, repo agreements generally involve implicit interest payments, as the difference between the sale price and the repurchase price represents the interest rate on the loan, so statement D is false.

Which of the Following Statements Is True Regarding Repurchase Agreements