A repurchase agreement (repo) is best described as which of the following?
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Get StartedA repurchase agreement (repo) is best described as which of the following?
Options:
- A short-term collateralized loan in which one party sells a security and agrees to repurchase it later at a set price
- An unsecured overnight loan between two banks without collateral
- A long-term swap of equity for debt that matures in several years
- A derivative that transfers credit risk without exchanging securities
Correct answer: A short-term collateralized loan in which one party sells a security and agrees to repurchase it later at a set price
Explanation: A repo is a secured short-term loan: the seller transfers a security as collateral and promises to repurchase it at a specified later date and price; repos are commonly overnight instruments in money markets.
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