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A repurchase agreement is a form of short-term borrowing for dealers in government bonds. In the case of repo, a seller sells government bonds to investors usually overnight and buys them back the next day at a slightly higher price.
A repurchase agreement is a form of short-term borrowing for dealers in government bonds. In the case of repo, a seller sells government bonds to investors usually overnight and buys them back the next day at a slightly higher price. This small difference in price is the implicit overnight interest rate. Repos are usually used to obtain short-term capital. At the same time, the central bank is a common instrument of open market transactions.
A repurchase agreement is a short-term secured loan: one party sells securities to another and agrees to buy back these securities later at a higher price. Securities serve as collateral. The difference between the initial price of securities and the repurchase price is the interest paid on the loan, which is known as the repo dec.
A reverse repo agreement (reverse repo) is a mirror of a repo transaction. In a reverse repo, one party buys the securities and agrees to sell them back for a positive return at a later date, usually as soon as the next day.