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Explanation:
A repurchase agreement normally has a fixed settlement date.
Things to Remember
A repurchase agreement, also known as a repo, is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.
For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
Repurchase agreements are typically used to raise short-term capital. They are also a common tool of central bank open market operations.
The 'buy back' price is fixed and includes the original sale price plus an additional amount that represents the interest on the loan.
The agreement is legally binding, meaning both parties are obligated to fulfill their respective obligations.
Q.2252 Boulogne Bank sells securities to Betis Bank as part of a repo agreement. Which of the following statements would not be consistent with best market practice under such agreements?
A
The “buy back” price would be fixed.
B
The contract would be settled overnight.
C
Betis Bank would be free to sell the securities back to Boulogne Bank at any time.
D
The agreement would be legally binding.
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