2011 Mock Question 50 2011, cannot, factor

Muddahudda

Why the answer to this cannot be C? I thought delivery requirement would be a big factor here?

Zestt

Physical delivery decreases the repo rate.

NO EXCUSES

Darien

Physical Delivery gets you best repo

Iginla2011

So, if you remove "physical delivery", it will increase repo - right? Hence delivery requirement is a big factor - that is what I thought.

skycfa

They are asking what is most likely to increase the rate. The collateral is delivered so that wouldnt increse the rate. The term of the repo is two months which is much longer than a normal contract (usually overnight).....hence requires a higher rate.

lcai

But you could undo the "collateral delivery" requirement and increase the rate. If it is not to be considered as a potential factor, I feel they should not even give it as a choice.

Roflnadal

All three items are factor into the repo rate in this question:

quality of collateral-AAA sovereign = lower rate
deliver of collateral = lower rate
Term - longer than typical contract = higher rate

NakedPuts2011

The key is the 2 months part...repos are typically overnight and rolled; two months is quite extensive for a repo, thus the increased rate