Question

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. Credit risk b. Liquidity risk c. Sovereign risk d. Operational risk

Answer 1

Answer:

b. Liquidity risk

Explanation:

Based on the information provided within the question it can be said that the this inability to get new repo financing is an example of liquidity risk. This term refers to the risk in which a company or bank may not be able to pay off the financial demands that they have in the short term, due to the company/bank not being able to liquidate their assets quickly enough, meaning they were not able to turn their assets into cash.