Which type of financial instruments are typically used in repurchase agreements?

Repurchase agreements, commonly known as repos, are short-term borrowing arrangements typically backed by government securities or similar assets. In these transactions, one party sells a financial asset to another with an agreement to repurchase it later at a predetermined price. The key aspect of repos is that they are secured by assets that have a reliable and predictable cash flow.

Government securities, such as treasury bonds, are often used in repos because they are deemed highly liquid and low-risk. The backing of these securities ensures that lenders have a safe asset to claim if the borrower defaults, making them a popular and stable choice in financial markets. Thus, when looking at the available options, assets with predictable cash flows, like government securities, stand out as the most appropriate instruments in the context of repurchase agreements.