A sale of securities with an agreement to buy them back at a higher price later, in effect a collateralised loan. The haircut protects the lender.
Where you will meet it
Repo comes up in 25 learning outcome notes across the FRM syllabus.
A few of them:
Properties of Interest Rates FRM Part I · Financial markets and products
“A repo is a sale of securities with an agreement to repurchase them at a higher price.”
Learning from Financial Disasters FRM Part I · Foundations of risk management
“Orange County (1994): a treasurer levered a pool with reverse repos and structured notes, a bet that rates would stay low.”
Fundamentals of Credit Risk FRM Part II · Credit risk measurement and management
“Repos and securities lending are secured, so the exposure is the amount lent less collateral, adjusted for any fall in collateral value before it is sold.”
Liquidity Risk FRM Part II · Liquidity and treasury risk measurement and management
“These include wholesale deposits, repo, commercial paper, interbank lines, and collateral or margin calls on derivatives.”
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