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enide-5795 18lcourse_id 123132 18ic 10 p QUESTION 8 An Repo implies that the lender receives a security for the time of the loan Since the RBA accepts only high quality securities, this makes the Repo risk-free. Because of the low risk, the RBA usually charges less than the interbank rate The interbank rate is for unsecured and therefore more risky loans. @ Despite the low risk, the RBA usually charges more than the interbank rate in order to deter banks from requesting an overnight ESF loan from the RBA Desvpist tate lnsk nisk. the RBA usual charges more igen the intertbenk fete because of the Despite the low risk, the RBA usually charges more than the interbank rate because of the long duration of overnight loans 10 point Click Save and Submic to save and submit. Click Save All Ansuers to save all answers Save All Answers Save
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Answer #1

First option is correct...

Equity derivatives are about futures and options whose pricing requires a set of parameters specific to the underlying security, including volatility, dividends, and repo. The first two parameters are well known and have become asset classes in their own right. Investors have been able to position directly on volatility and dividends via various instruments-volatility futures, variance swaps, or dividend futures. However, repo trading has remained confined to a handful of players at best, or completely discarded at worst. This in unjustified in our view, given that repo is key in derivative pricing and can be monetised to generate alpha. Investors are mostly familiar with equity repo in the context of securities lending For example, selling a stock without owning it requires borrowing the security and consequently paying a fee, the repo rate, to the lender. The higher the demand to borrow a security, the higher the repo rate. We can extend this concept to index futures, the most liquid equity derivative instrument.

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