For the seller in a _________________agreement, a liability is recorded for the amount of proceeds of the sale and the sold mortgage-backed securities are not removed from the accounting records.

Question

Options

• Ainvestment income
• Bdollar reverse repurchase
• Cdollar-resale payment
• Dresale interest income

• A
  7% (3)
• B
  86% (36)
• C
  2% (1)
• D
  5% (2)

Explanation

Option B is correct because a dollar reverse repurchase agreement (commonly associated with mortgage-backed securities/MBS dollar rolls) is structured so that if the transaction fails to meet the criteria for true-sale accounting, the seller records the cash proceeds as a liability (a secured borrowing) while keeping the MBS on the balance sheet - exactly as described in the question. The other options - A (investment income), C (dollar-resale payment), and D (resale interest income) - are fabricated or misapplied terms that describe revenue/income categories, not agreement types at all; no such named agreements exist in accounting or finance. To distinguish the distractors, notice they all contain income- or payment-related words, which are output/result concepts, whereas the question is asking for the type of agreement (a structural/contractual term). A handy memory tip: in a dollar reverse repo, the accounting "reverses" the intuition - despite a "sale" occurring, the seller reverses the derecognition, keeping assets on the books and booking a liability instead.

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