Dollar rolls differ from regular repurchase agreements due to which of the following characteristics in the securities sold and repurchased.
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A. B. C. D.D
Dollar rolls and regular repurchase agreements (repos) are both types of transactions commonly used in the financial industry. While they share some similarities, they differ in certain characteristics. In the context of the question, we need to identify the characteristics that distinguish dollar rolls from regular repos in terms of the securities sold and repurchased. Let's examine each answer choice:
A. They are represented by different certificates. This answer choice suggests that dollar rolls and regular repos involve securities that are represented by different certificates. However, this is not a characteristic that distinguishes dollar rolls from regular repos. In both types of transactions, the securities involved can be represented by the same certificates. Therefore, this answer choice is incorrect.
B. They are collateralized by different but similar mortgage pools. This answer choice states that dollar rolls and regular repos are collateralized by different but similar mortgage pools. This is a characteristic that distinguishes dollar rolls from regular repos. In a dollar roll transaction, the securities sold and repurchased are collateralized by similar mortgage pools but not necessarily the same ones. This allows investors to maintain exposure to the mortgage market while adjusting their specific holdings. Therefore, this answer choice is correct.
C. They generally have different principal amounts. This answer choice suggests that dollar rolls and regular repos generally involve different principal amounts. However, this is not a characteristic that distinguishes dollar rolls from regular repos. In both types of transactions, the principal amount can vary depending on the terms agreed upon by the parties involved. Therefore, this answer choice is incorrect.
D. All of the above. This answer choice states that dollar rolls differ from regular repos due to all of the mentioned characteristics: different certificates, collateralized by different but similar mortgage pools, and different principal amounts. However, as explained above, only answer choice B is correct. Therefore, the correct answer is B. They are collateralized by different but similar mortgage pools.