than relying on industry jargon, investment guidelines should clearly state what a portfolio manager is permitted to do. For example, a client may have no objections to its portfolio manager using a repo to invest funds short-term (i.e., lend at the repo rate). The investment guide- lines should set forth how the loan arrangement should be structured to protect against credit risk. We will discuss these procedures in the next section. Conversely, if a client does not want a portfolio manager to use a repurchase agreement as a vehicle for borrowing funds (thereby, creating leverage), it should state so clearly.   Types of Collateral While in our illustration, we use a Treasury security as collateral, the collat- eral in a repo is not limited to government securities. Money market instru- ments, federal agency securities, and mortgage-backed securities are also used. In some specialized markets, even whole loans are used as collateral.   Documentation Most repo market participants in the United States use the Master Repurchase Agreement published by Bond Market Association. Para- graphs 1 ("Applicability"), 2 ("Definitions"), 4 ("Margin Mainte- nance"), 8 ("Segregation of Purchased Securities"), 11 ("Events of Default"), and 19 ("Intent") of this agreement are reproduced in the appendix to this chapter. In Europe, the Global Master Repurchase Agreement published by the Bond Market Association (formerly, the Public Securities Association) and the International Securities Market Association has become widely accepted. The full agreement may be downloaded from www.isma.org.       CREDIT RISKS   Just as in any borrowing/lending agreement, both parties in a repo trans- action are exposed to credit risk. This is true even though there may be     high-quality collateral underlying the repo transaction. Consider our ini- tial example in Exhibit 8.1 where the dealer uses U.S. Treasuries as col- lateral to borrow funds. Let us examine under which circumstances each counterparty is exposed to credit risk. Suppose the dealer (i.e., the borrower) defaults such that the Treasur- ies are not repurchased on the repurchase date. The investor gains control over the collateral and retains any income owed to the borrower. The risk is that Treasury yields have risen subsequent to the repo transaction such