A repurchase agreement is:

A repurchase agreement is:

• A. A sale of securities with a promise to repurchase at a specified date
• B. A loan secured by real estate
• C. A derivative contract based on interest rates
• D. An unsecured cash loan

Answer: (A)

A repurchase agreement is a sale of securities with a promise to repurchase at a specified date. In a repo, one party sells securities to another to raise short‑term cash and agrees to buy them back later at a higher price, with the cash loan effectively priced by that difference. The arrangement is secured by the securities serving as collateral, which reduces counterparty risk and allows for very short maturities, often overnight. This distinguishes it from a loan secured by real estate (which would be a mortgage), a derivative contract based on interest rates (such as swaps or futures), or an unsecured cash loan (which would involve no collateral).

A repurchase agreement is a sale of securities with a promise to repurchase at a specified date. In a repo, one party sells securities to another to raise short‑term cash and agrees to buy them back later at a higher price, with the cash loan effectively priced by that difference. The arrangement is secured by the securities serving as collateral, which reduces counterparty risk and allows for very short maturities, often overnight. This distinguishes it from a loan secured by real estate (which would be a mortgage), a derivative contract based on interest rates (such as swaps or futures), or an unsecured cash loan (which would involve no collateral).