The correct answer is C. When financing a purchase of securities, financial institutions often sell the repo to avoid putting up the full purchase price for the securities. This is because in a repurchase agreement (repo), the seller of the security agrees to buy it back from the buyer at a later date for a specified price. By selling the repo, the financial institution is essentially borrowing money to finance the purchase of securities without having to pay the full amount upfront. This allows the institution to manage its liquidity more effectively and maintain sufficient cash reserves for other purposes.

Option A is incorrect because a trader who wants to short a bond would enter into a reverse repurchase agreement (reverse repo), not a repo. In a reverse repo, the trader sells the bond and agrees to buy it back at a later date, allowing them to profit if the bond's price falls.

Option B is incorrect because margin calls are indeed common in repo transactions. A margin call occurs when the value of the collateral falls below a certain threshold, and the lender requires the borrower to provide additional collateral or repay some of the borrowed funds.

Option D is incorrect because money market mutual funds typically enter into reverse repo agreements to invest in short-term instruments. By doing so, they lend money to other parties in exchange for collateral, earning interest on the loan while also benefiting from the safety of the collateral.