Question

For repo, in contrary to _____, the lender of money does often have the right to sell the securities.

a. money market mutual funds

b. standard collateralized loans

c. standard unsecured loans

d. equity

Answer 1

Answer : Option b) standard collateralized loans

In this type of a security generally the lender in return of lending money often takes something as a collateral in order to reduce the risk in case of default. Like say in case of giving away mortgage loans, generally the property is kept as a collateral. What happens here is that if the one who took the loan, defaults in paying back then the lender can resort to selling the property and thereby getting their money back. But hereby the selling of the security can only happen in cases where the loan becomes a bad debt when the person defaults in paying back. So the lender does not often have the right to sell off the security in this case, only in case of defaults it can sell the security to get the money back. Which is in contrary to repo where the lender does often have the right to sell the securities.