Series 7 practice questionmediumMoney Market — Reverse Repos
A reverse repurchase agreement, from the investor's perspective, is essentially:
- AAn agreement to buy bonds at a future date at a lower price✓ Correct answer
- BA short-term loan where the investor lends money and receives securities as collateral
- CA long-term investment in government bonds
- DA sale of securities with no obligation to repurchase
Explanation
Why A — An agreement to buy bonds at a future date at a lower price
In a reverse repo, the investor (buyer) provides cash to the dealer and receives securities as collateral, with the agreement that the dealer will repurchase the securities at a higher price. From the investor's perspective, it functions as a short-term collateralized loan. The investor earns the difference between the purchase and resale price as interest income. Reverse repos are considered very safe due to the government securities collateral.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Investment Information & Recommendations questions