Banking Practice Exam

Goldman Sachs engages in loaning securities under an agreement to repurchase them at a later date, which is typically structured as “collateralized financings.” This arrangement allows them to provide liquidity to borrowers while securing the transaction with collateral, effectively reducing risk for the lender.

In collateralized financing, securities serve as collateral against the loan, ensuring that both parties are protected, especially if one party defaults. The agreement stipulates the conditions under which these securities are repurchased, including the price and timing, establishing a clear framework for the transaction.

Other options, while related, do not accurately describe the specific mechanism of lending securities with a repurchase agreement. For example, collateralized agreements could refer to various types of secured transactions but do not specifically denote the practice of repurchasing securities. Financial instruments is a very broad term that encompasses a wide range of investment tools, while payables refer to amounts owed by a company rather than a lending mechanism. Thus, the choice of "collateralized financings" is the most precise term to describe the securities loaned by Goldman Sachs under a repurchase agreement.