What exactly does reverse repo arrangement mean? This qn is from CFA 2007 sample exam#1. Stack enters into a reverse repo arrangement using T-bonds with market value of 240,000 and subject to a margin (haircut) of 2%. The reverse repo has a term of 1 month, an interest rate of 2.4%, is marked to market weekly. Q1. The dollar interest rate from the reverse repo agreement is: Ans. 470 Q2. What is the impact of an interest rate decrease 10 days later on the margin? Ans. Surplus and cash flow to Stack Can someone clarify??? - BN
i think reverse repo is just a standard repo where stack is the lender rather than the borrower
As max said, Repo is from the bond dealer’s perspective(he is borrowing money) and reverse repo is from the counter part’s perspective. Int = Cash borrowed* Int rate * (1-%Margin) 240000* 2.4/12 * 0.98 = 470.4 this is the interest that stack will receive from the dealer. For Q2, I think surplus is in reference to the int rate decrease that has happened since they locked the rate earlier. since stack has locked 2.4%, he is getting more cash than he would have if he is to lend now…
Where the F did u get 2007 Sample exam??
Tell us know! 
yeah, holy carp…why didn’t i catch that…