The Repo Margin on a Repurchase Agreement Is Most Likely

question 21

Multiple Choice

The repo margin on a repurchase agreement is most likely to be lower when:

• A) the underlying collateral is in short supply.
• B) the maturity of the repurchase agreement is long.
• C) the credit risk associated with the underlying collateral is high.

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Definitions:

Production and Pricing

The process of determining the cost and price for goods or services created by a business.

External Benefits

Advantages or positive effects that extend to parties not directly involved in a transaction or activity.

Competitive Market

A market scenario where there are many buyers and sellers, and no single entity has the power to significantly influence the prices of goods and services.

Resource Allocation

The process of distributing available resources among various competing needs or uses in an effort to achieve maximum efficiency or to accomplish specific objectives.