Tuckman, Chapter 12: Repurchase Agreements and Financing Study Notes contain 12 pages covering the following learning objectives:
Describe the mechanics of repurchase agreements (repos) and calculate the settlement for a repo transaction.
Discuss common motivations for entering into repos, including their use in cash management and liquidity management.
Discuss how counterparty risk and liquidity risk can arise through the use of repo transactions.
Assess the role of repo transactions in the collapses of Lehman Brothers and Bear Stearns during the (2007 – 2009) credit crisis.
Compare the use of general and special collateral in repo transactions.
Identify the characteristics of special spreads and explain the typical behavior of US Treasury special spreads over an auction cycle.
Calculate the financing advantage of a bond trading special when used in a repo transaction.
After reviewing the notes, you will be able to apply what you learned with practice questions.
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