Repo Rate and Financing - Quant Trader Interview Question
Difficulty: Medium
Category: Algorithms & Data Structures
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Topics: repo-rate, financing, fixed-income, trading
Problem Description
A bond trader at a major investment bank holds a large position in 10-year US Treasury bonds. To finance this position, the trader enters into a repurchase agreement (repo) where they sell the bonds to another party with an agreement to buy them back at a later date at a slightly higher price.
What is the primary economic purpose of this repo transaction from the perspective of the bond trader?
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