A state transfers cagh to a broker and the broker transfers securities to the state,...

Definition of a Repurchase Agreement (Repo):A repurchase agreement is a short-term financial transaction where one party sells securities to another with an agreement to repurchase them at a later date for a specified price, which includes interest. It functions as a secured loan.

Transaction Description:

The state transfers cash to a broker.

The broker provides securities as collateral and agrees to repay the cash plus interest in exchange for the return of the same securities.This arrangement matches the definition of arepurchase agreement.

Explanation of Answer Choices:

A. Arbitrage agreement: Arbitrage involves exploiting price differences in markets, unrelated to this transaction.

B. Repurchase agreement: Correct, as it fits the definition.

C. Mutual buy-sell agreement: This involves agreements to buy and sell assets, unrelated to this financial transaction.

D. Reverse repurchase agreement: Incorrect, as the state would be the borrower, not the lender, in a reverse repo.

References:

U.S. Department of the Treasury,Guide to Federal Investments.

Financial Accounting Standards Board (FASB),Accounting for Repurchase Agreements.