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True or false? There are widespread rumours that company X is facing financial distress and a...

True or false? There are widespread rumours that company X is facing financial distress and a number of traders are borrowing the company’s bonds in order to short-sell them. This will lead to the repo rate on company X’s bonds being higher than the repo rate on other bonds. Justify.

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Answer #1

This is a FALSE statement because repo rate is only for Central Bank of the country.It is not for corporates and buying of bonds doesn't lead to increase in repo rate of the company being higher than others.

Hence the given statement is not a true statement because repo rate is the rate at which the central bank of the country lends to other commercial banks of the country and it is not about corporates.Repo rate is used by monetary authority to control inflation.

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