Question

a firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?

Answer 1

For dealers in government securities, a repurchase agreement (repo) is a type of short-term loan.

What are the benefits of repurchase agreements?

In a repurchase agreement, two parties agree to enter into a binding agreement whereby one party will sell shares to the other party at a defined price with the promise to purchase the assets from the other party at a later time for a different (often higher) predetermined price.

Repurchase agreements (repos) are a short-term borrowing option for government securities dealers. An example of a repo is when a dealer sells investors government securities, typically overnight, and then buys them back the next day at a slightly higher price.

The US Federal Reserve uses repurchase agreements in open market operations to increase banking system reserves and withdraw them after a predetermined time.

In order to add back reserves later, this is utilized to temporarily drain them. In order to keep interest rates stable, it can be utilized.

Therefore, the answer is Repurchase agreement.

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