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Question 2-11B

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Essentials Of Investments
Found in: Page 50
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Which of the following correctly describes a repurchase agreement?

a. The sale of a security with a commitment to repurchase the same security at a specified future date and a designated price.

b. The sale of a security with a commitment to repurchase the same security at a future date left unspecified, at a designated price.

c. The purchase of a security with a commitment to purchase more of the same security at a specified future date.

The correct answer is Option ‘a’

See the step by step solution

Step by Step Solution

Definition

Repurchase agreements also called repos are short-term sales of government securities with an agreement to re-purchase the securities at higher rates.

Explanation

From the above definition, it is apparent that the following term correctly describes a repurchase agreement:

a. The sale of a security with a commitment to repurchase the same security at a specified future date and a designated price.

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