Repurchase agreements (repos) are used extensively to finance security holdings. In 2007, many investment banks and other financial institutions were unable to roll over their maturing repurchase agreements during the subprime mortgage crisis. This inability to get new repo financing is an example of:

a. technological risk

b. sovereign risk

c. credit risk Incorrect

d. operational risk

e. liquidity risk

Question

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23 May, 07:44

Repurchase agreements (repos) are used extensively to finance security holdings. In 2007, many investment banks and other financial institutions were unable to roll over their maturing repurchase agreements during the subprime mortgage crisis. This inability to get new repo financing is an example of:

a. technological risk

b. sovereign risk

c. credit risk Incorrect

d. operational risk

e. liquidity risk

+4

Answers (2)

Know the Answer?

Olson · Answer 1

The correct option is liquidity risk

Explanation:

Option A is wrong as technological risk implies potential business losses as a result technological related issues like their technological innovation becoming outdated

Sovereign risk is the risk that the central bank decisions will render worthless foreign currency contracts already entered into.

Liquidity risk is the risk that a debtor is unable to meet its short term debt obligations due to inability to generate returns from investment which used to be viable.

Christian Long · Answer 2

Liquidity Risk

Explanation:

The reason is that the risk that limits the financing which heads the company towards the financial risk is liquidity risk. In this case, the companies are unable to finance its operations again which means that the company will not be able to finance its operations which will increase its financial risk and is liquidity risk.