FRM Part II · FRM Exam Part II · Repurchase Agreements and Financing
In a tri-party repo, which function is performed by the tri-party agent?
The tri-party agent handles collateral allocation, valuation, and settlement between the lender and borrower. It does not guarantee repayment or set the rate, so credit risk and pricing stay with the parties.
- AIt handles collateral allocation, valuation, and settlement between the cash lender and borrowerCorrect
- BIt guarantees the borrower's repayment of cash
- CIt sets the repo rate between the parties
- DIt takes legal ownership of the collateral for the term of the trade
Explanation
The tri-party agent provides operational services such as collateral selection, valuation, margining and settlement. It does not guarantee performance or negotiate the rate, which remain bilateral.
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