Which of the following is true of a repurchase agreement?
A) It results from a bank guarantee of a business transaction; sold at discount from maturity value.
B) It provides a return slightly below that obtainable through outright purchase of similar marketable securities.
C) It is issued by professional portfolio management companies.
D) Its maturity period lies between 1 to 10 years.

Question

Quizplus · Accepted Answer

A repurchase agreement, also known as a repo, involves the sale of securities by one party with a promise to repurchase them at a specified price and date. The buyer of the securities earns a return slightly below what they could earn by outright purchasing similar marketable securities, making option B the correct answer. Options A, C, and D are incorrect as repurchase agreements are not guaranteed by banks, are not issued by professional portfolio management companies, and do not typically have a maturity period between 1 to 10 years.

Which of the Following Is True of a Repurchase Agreement