Question: Suppose a manager wants to borrow using a Treasury security she currently holds as collateral. The portfolio manager can enter a repo with a dealer

Suppose a manager wants to borrow using a Treasury security she currently holds as collateral. The portfolio manager can enter a repo with a dealer firm that would provide financing at a

10 %

repo rate. The repo term is

30

days and the nominal amount of the contract is USD

100

million. Answer the following questions:

1)

What is the dollar interest cost that the manager needs to pay?

2)

What is the total amount being borrowed?

3)

What is the risk that borrower does not buy back the collateral?

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