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, is a short-term borrowing tool in which an investor agrees to buy securities from a dealer and then sell them back at a slightly higher price in the near future. The return on a repo is slightly below that obtainable through outright purchase of similar marketable securities. The other options listed are incorrect: A is describing a bank guarantee or a discount bond, C is describing mutual funds or hedge funds, and D is incorrect as the maturity period for a repo is usually less than a year.

Which of the Following Is TRUE of a Repurchase Agreement