A repo transaction whereby the collateral transferred (securities) is denominated in a different currency than that in which the cash lent out is denominated. For example, a repo may involve borrowing U.S. dollars against U.K. government bonds (bonds denominated in sterling). Because this transaction is exposed to exchange rate risk, it needs to be revaluated (by marking to market) on a frequent basis to account for fluctuations in foreign exchange rates. This would help ensure full collateralization of both cash and securities. Banks and other financial institutions use this type of repo to earn potential funding gains in a currency other than that of the collateral.
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