Cross Currency Repo
All the different types of repo we have considered so far have used cash and/or securities denominated in the same currency (example: Bunds trade vs euro cash or other euro denominated securities). But it is also possible to trade Japanese Government bonds vs US dollar cash or any other currency; or pledge Spanish Government bonds against borrowing UK gilts.
Daylight exposure may be significant in the case of cross-currency repos if securities cannot settle vs payment. Because of its higher level of risk, this type of repo must be covered by appropriate legal documentation and credit approval for pre-payment exposure.
Moreover, the collateral transacted in a cross-currency repo has a higher volatility than in normal repo because price is determined by both the interest rate and exchange rate movements. To compensate, the borrower may be required to pay a higher repo rate than the general collateral (GC) rate or the lenders may take a higher haircut. Also, fluctuating foreign exchange rates mean that it is likely that the transaction will be marked-to-market frequently in order to ensure that cash or securities remain fully collateralized. Read more statistics of cross-currency repos.
