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FRM Part II · FRM Exam Part II · Repurchase Agreements and Financing

In a general collateral (GC) repo, compared with a special repo, which statement is correct?

In a GC repo the cash lender accepts any security from an eligible basket, so the rate reflects the general market funding rate. In a special repo the lender seeks a specific security in demand and accepts a lower rate.

  1. AThe cash lender accepts any security from an eligible basket, and the repo rate is typically higher than for a special
  2. BThe cash lender wants a specific security, and the repo rate is typically lower than the GC rate
  3. CThe cash lender wants a specific security, and the repo rate is typically higher than the GC rate
  4. DThe cash lender accepts any security from an eligible basket, and the repo rate is typically close to the general market rateCorrect

Explanation

In a GC repo the lender is indifferent among eligible securities, so the rate reflects general funding conditions. A special repo targets a particular security in demand; the cash lender accepts a lower rate to obtain it, so specials trade below GC.

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