CFAI 2011 Mock: Question 50 physical, agreement, 2011, increase

John10

The characteristic of the repurchase agreement considered by Kapoor that would most likely
increase the repo rate is the:
A. term.
B. collateral.
C. delivery requirement

The vignette said she is considering physical delievery, so I marked C but thats incorrect. Can someone explain why A.term is the right answer and not C?

NakedPuts2011

Physically delivering the collateral to the counterparty instead of holding it at a custodian bank is "safer", so the rate should be lower.

NO EXCUSES

liangfeng

physical delivery is more of a requirement for the borrower to provide to the lender. without it, the lender is taking more risk because if the borrower defaults they would not have that delivery. so that increased cost and expense of providing that delivery to the lender decreases the amount they have to pay on the loan. no?

lcw77

agreed...I think i was thinking from cost perspective...that it wll be costly to deliver but didnt notice tht...it will actually reduce the repo rate. thanks guys ...u make things look easier

btw, just curious...did anyone gt this Q right on the mock...seems so easy but its one deceptive Q

43. Based on the information in Exhibit 1, a portfolio with a 70% allocation to the current portfolio
and a 30% allocation to the U.S. stock index will have standard deviation of returns that is
closest to:
A. 12.4%.
B. 13.1%.
C. 14.4%

mar350

No, I got tricked on that one because I didn't convert the foreign US standard deviation to British terms.

NO EXCUSES

Darien

i got tricked also ............even looking at the answer i doubt i would be able to do this under time duress

Analti_Calte

Q43, I knew it needs a "brute force attack", and no wasting time..., but I guessed a wrong answer. I'll alter my strategy for a question like this.



Edited 1 time(s). Last edit at Saturday, May 21, 2011 at 12:50PM by deriv108.

bboo

repo is general overnight , 2month is very long , increase repo rate