SOFA-CFE · Question #84
Dollar repurchase agreements are commonly referred to as dollar roll transactions.
The correct answer is A. True. Option A is correct because "dollar roll" is simply the market term for a repurchase agreement (repo) applied specifically to mortgage-backed securities (MBS). In a dollar roll, a dealer sells MBS to an investor and agrees to repurchase similar (not identical) securities at a…
Question
Dollar repurchase agreements are commonly referred to as dollar roll transactions.
Options
- ATrue
- BFalse
How the community answered
(32 responses)- A75% (24)
- B25% (8)
Explanation
Option A is correct because "dollar roll" is simply the market term for a repurchase agreement (repo) applied specifically to mortgage-backed securities (MBS). In a dollar roll, a dealer sells MBS to an investor and agrees to repurchase similar (not identical) securities at a future date at a lower price - the economic structure mirrors a repo but with the substitution feature unique to MBS markets.
Option B is wrong because the statement is factually accurate - dollar rolls are repos, just with MBS-specific mechanics. Calling them something entirely different would misrepresent established market terminology.
Memory tip: Think of it this way - a dollar roll "rolls" the same dollars through an MBS position over time, just like a repo "repurchases" the same position. The word "dollar" flags the MBS context (mortgage payments are dollar-denominated cash flows), helping you connect the two terms.
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