Question

The repo margin on a repurchase agreement will most likely grow when:

a) The repo term is shorter
b) The creditworthiness of the borrower improves
c) Market interest rates decrease
d) The collateral's value increases

Answer 1

The repo margin on a repurchase agreement will most likely grow when the creditworthiness of the borrower improves and when the collateral's value increases.

Step-by-step explanation:

The repo margin on a repurchase agreement will most likely grow when:

1. The creditworthiness of the borrower improves: If the borrower is a firm with a record of high profits, then it is likely to be able to repay the loan, and you would be willing to pay more for the loan.
2. The collateral's value increases: If interest rates in the economy have fallen, then the loan is worth more.