{"id":1791,"date":"2019-09-27T13:33:00","date_gmt":"2019-09-27T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1791"},"modified":"2026-01-15T11:51:16","modified_gmt":"2026-01-15T11:51:16","slug":"repurchase-agreements-repos","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/fixed-income\/repurchase-agreements-repos\/","title":{"rendered":"Repurchase Agreements (Repos)"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n\n  \"name\": \"Fixed-Income Markets: Issuance, Trading and Funding (2025 Level I CFA\u00ae Exam \u2013 Fixed Income\u2013Module 2)\",\n\n  \"description\": \"This video lesson covers Topic 6 \u2013 Fixed Income Markets, Module 2, exploring global fixed-income market classifications, interbank offered rates, bond issuance mechanisms, secondary markets, sovereign and non-sovereign debt, corporate debt, structured financial instruments, short-term funding for banks, and repurchase agreements with associated risks.\",\n\n  \"uploadDate\": \"2022-05-20T00:00:00+00:00\",\n\n  \"thumbnailUrl\": \"https:\/\/analystprep.com\/path-to-thumbnail\/fixed-income-markets-thumbnail.jpg\", \n\n  \"contentUrl\": \"https:\/\/youtu.be\/l7RAt_PtF9g\",\n\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/l7RAt_PtF9g\",\n\n  \"duration\": \"PT48M15S\",\n\n  \"publisher\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\",\n    \"logo\": {\n      \"@type\": \"ImageObject\",\n      \"url\": \"https:\/\/analystprep.com\/path-to-logo\/logo.jpg\",\n      \"width\": 600,\n      \"height\": 60\n    }\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which factor lowers the level of the repo margin?\",\n    \"text\": \"Which of the following factors lowers the level of the repo margin? A. A longer repurchase agreement. B. A higher quality of the collateral. C. A lower creditworthiness of the borrower.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"A higher quality of the collateral lowers the level of the repo margin. The quality of the collateral is a key determinant of the repo margin, and higher-quality collateral typically requires a lower repo margin.\"\n    }\n  }\n}\n<\/script>\n\n\n\n\n<iframe loading=\"lazy\"\n  width=\"611\"\n  height=\"344\"\n  src=\"https:\/\/www.youtube.com\/embed\/l7RAt_PtF9g\"\n  title=\"YouTube video player\"\n  frameborder=\"0\"\n  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\"\n  referrerpolicy=\"strict-origin-when-cross-origin\"\n  allowfullscreen>\n<\/iframe>\n\n\n\n<p>A repurchase agreement (or simply &#8220;repo&#8221;) is the sale of a security with a simultaneous agreement by the seller to buy back the same security from the same buyer at an agreed-upon price. When a repurchase agreement is viewed from the perspective of the cash lending party, it is commonly called a <span class=\"primary-color\">reverse repurchase agreement<\/span>.<\/p>\n<h2><strong>Repo Margin<\/strong><\/h2>\n<p>Each market participant in a repurchase agreement is exposed to counterparty defaults, regardless of the collaterals posted. The agreement is such that the lender is always the most vulnerable party. As such, the repo margin (called <span class=\"primary-color\">haircut<\/span>\u00a0in the US) is the difference between the market value of the security used as collateral and the value of the loan.<\/p>\n<h3>Factors Affecting the Repo Margin<\/h3>\n<p>The level of margin is dependent on the following factors:<\/p>\n<ul>\n<li><strong>the length of the repurchase agreement<\/strong>: the longer the repurchase agreement, the higher the repo margin;<\/li>\n<li><strong>the quality of the collateral<\/strong>: the higher the quality, the lower the repo margin;<\/li>\n<li><strong>the credit quality of the counterparty<\/strong>: the higher the creditworthiness, the lower the repo margin;<\/li>\n<li><strong>the supply and demand for collateral<\/strong>: repo margins are lower if the collateral is in high demand.<\/li>\n<\/ul>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following factors lowers the level of the repo margin?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">A longer repurchase agreement.<\/li>\n<li data-tadv-p=\"keep\">A higher quality of the collateral.<\/li>\n<li data-tadv-p=\"keep\">A lower creditworthiness of the borrower.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>The quality of the collateral is one of the determinants of the repo margin. The higher the quality of the collateral, the lower the level of the repo margin.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>A repurchase agreement (or simply &#8220;repo&#8221;) is the sale of a security with a simultaneous agreement by the seller to buy back the same security from the same buyer at an agreed-upon price. When a repurchase agreement is viewed from&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"class_list":["post-1791","post","type-post","status-publish","format-standard","hentry","category-fixed-income","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Repurchase Agreements (Repos) Explained | CFA Level 1<\/title>\n<meta name=\"description\" content=\"A repo involves selling a security with an agreement to repurchase it later at a set price. 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