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As a risk manager at a global bank, how would you accurately distinguish between repurchase agreements (repos) and reverse repurchase agreements (reverse repos) to educate junior risk analysts? In your explanation, include details about the characteristics of each type of agreement as well as the typical market participants involved.
A
A trader who would like to short a bond could enter into a repo to borrow the bond.
B
Haircuts on collateral are typically charged to those who lend collateral in repo transactions, but margin calls are usually not made.
C
When financing a purchase of securities, financial institutions often sell the repo to avoid putting up full purchase price for the securities.
D
Money market mutual funds tend to enter into a repo to invest short-term liquid instruments.