Question

"A repurchase agreement is effected between two U.S. Government securities dealers. The interest charged under the agreement is the:"

Answer 1

"repo" rate, paid by the seller of the securities to the buyer

Step-by-step explanation:

For a given situation whereby repurchase agreement occurs between 2 government dealers, what is involved is that government securities dealer transacts securities with another dealer, based on consensus to buy them back at a future period.

The selling dealer receives money, and in return, pledges to pay interest to the buying dealer. The interest rate charged is referred to as the "repo" rate which simply means the repurchase agreement interest rate.

Hence, the correct answer in this case, is "repo" rate, paid by the seller of the securities to the buyer