Explanation:
A repo investor motivated purely by cash management aims to lend cash securely in exchange for interest. Such an investor is generally indifferent to the specific security received as collateral, provided it meets their safety and liquidity criteria. Thus, they readily accept general collateral (GC). Refusing general collateral to insist on particular securities is a motivation for a party that specifically needs to borrow those securities (e.g., to cover a short position), not for cash management. Therefore, option C is the least likely preference.
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513.2. Rankcon is a repo investor in the money market mutual fund industry with the exclusive motive of cash management. As Tuckman explains, "Investors holding cash for liquidity or safekeeping purposes often find investing in repo to be an ideal solution. The most significant example of this is the money market mutual fund industry, which invests on behalf of investors willing to accept relatively low returns in exchange for liquidity and safety." Note: a money market fund would lend money while taking collateral and then, at maturity, collect the loan plus interest and return the collateral.
Given this motivation, Rankcon understandably employs each of the following criteria (or preference) with respect to its repo investments EXCEPT which is the LEAST likely preference?
A
Rankcon insists on a sufficient (i.e., greater rather than lesser) collateral haircut
B
Rankcon only accept securities with the highest credit quality; e.g., debt of government-sponsored entities (GSEs)
C
Rankcon refuses to accept general collateral (at general collateral repo rates) and instead insists on particular securities with delineated asset classes
D
Rankcon places a premium on liquidity so tends to lend overnight rather than for term; or, if it wants to lend cash for an extended period, engages in an open repo
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