The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Construct an original two-party repo question that tests who receives cash and what happens at maturity. Removing the reversal agreement changes the conceptual transaction being analysed. An original checkpoint is: Which party receives cash at the start of the illustrated repo? Supported answer: Borrower B. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
A temporary repo funding operation is conceptually different from an outright purchase of the same security. A useful study check is to draw initiation cash and securities arrows, then distinguish repo direction from outright purchase. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
In a simplified repo, lender L supplies 100 in cash to borrower B against securities, with an agreed repurchase price of 101 at maturity. B receives temporary funding and later returns 101 to recover the securities. The one-unit difference is the transaction’s financing cost in this example, before considering conventions or other contractual details.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
Which party receives cash at the start of the illustrated repo?
Show the answer and reasoning
Borrower B.
B obtains the initial 100 in cash while providing securities under the repurchase agreement. L supplies cash and receives the securities for the transaction’s term. At maturity the stated flows reverse for 101. The labels depend on cash direction, so identifying the collateral recipient alone can confuse the borrower and lender.
Two traps to watch for.
- Describing temporary collateralised funding as an outright asset sale.
- Confusing the cash borrower with the securities recipient.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Draw initiation cash and securities arrows.
Draw maturity flows and repurchase obligation.
Distinguish repo direction from outright purchase.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- m.rbi.org.in https://m.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
