Which of the following statements is true regarding repurchase agreements?
A) Their maturity is greater than 1 year.
B) They are an unsecured form of borrowing.
C) U.S. Treasury securities serve as their collateral.
D) They make explicit, rather than implicit, interest payments.

Question

Quizplus · Accepted Answer

Repurchase agreements are short-term (usually overnight) transactions in which one party sells securities (usually U.S. Treasury securities) to another party with an agreement to repurchase them at a later date at a slightly higher price. Therefore, U.S. Treasury securities serve as their collateral. Options A, B, and D are incorrect because repurchase agreements have short-term maturity, are secured borrowing, and usually involve implicit interest payments (i.e., the difference between the sale and repurchase price).

Which of the Following Statements Is True Regarding Repurchase Agreements