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1 FINANCE MCQS

Which agreement involves selling a security with a promise to buy it back at maturity?

  • Repurchasing commercial notes
  • Repurchase bills
  • Purchase agreement
  • Reverse repurchase agreement
Correct Answer: D. Reverse repurchase agreement

Detailed Explanation

A reverse repurchase agreement (reverse repo) is a short-term transaction where one party buys securities and agrees to sell them back later at a fixed price. It is used by central banks and financial institutions to manage liquidity and short-term interest rates in the market.

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