A repurchase agreement occurs when
A)a company agrees to buy back its commercial paper before maturity.
B)a bank depositor agrees, in advance, to reinvest money in a negotiable certificate of deposit.
C)an investor buys part of a government security dealer's inventory and simultaneously agrees to sell it back.
D)the federal government agrees to buy T-bills.

Question

Quizplus · Accepted Answer

A repurchase agreement, also known as a repo, is when an investor purchases securities from a dealer and simultaneously agrees to sell those same securities back to the dealer at a future date for a predetermined price. This is typically done with government securities and is a way for the dealer to obtain short-term financing while the investor earns a small profit on the transaction. Choices A, B, and D do not accurately describe a repurchase agreement.

A Repurchase Agreement Occurs When