Repo

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The Economic Times  May 19  Comment 
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The Hindu Business Line  May 18  Comment 
The 10—year benchmark government security rose 31 paise on Monday on the hope that Reserve Bank may reduce repo rate in the coming June policy after Finance Minister Arun Jaitley said he expects R...
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The Federal Reserve investigated how it could keep a massive short term lending market from freezing up if America defaulted on its debt, according to a person familiar with planning that was done by the New York Fed. The person, who asked not to...
Financial Times  May 10  Comment 
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The Economic Times  May 7  Comment 
The Reserve Bank will conduct a 7 day variable rate repo auction tomorrow under Liquidity Adjustment Facility (LAF) worth Rs 20,000 crore.
The Economic Times  May 7  Comment 
It said retail inflation for April is likely to be at sub-5 per cent level, with a significant possibility of being close to 4.75 per cent.
Mondo Visione  May 6  Comment 
Repo with the CCP remains the fastest-growing instrument on Moscow Exchange"s Money Market. In April 2015, trading volumes of CCP-cleared repo totaled RUB 4.4, a year-on-year increase of approximately three times and a monthly record since...
The Economic Times  Apr 29  Comment 
Raghuram Rajan overruled the majority view yet again on interest rate decision as he kept policy rates unchanged at the last review meeting in the run up to the April policy review.




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Repurchase agreements, or repos, are transactions in which a borrower "sells" securities to a lender and agrees to purchase it back for at a specified price on a later date. Most repos are overnight transactions between financial institutions and are primarily used in money markets.

In effect, a repo is a secured loan since the lender gets a collateral for the cash being lent out -- the only difference is that the ownership of the collateral is transferred in the case of repos, whereas under a loan the borrower retains ownership of the collateral. The difference between the selling price and the repurchase price is the effective interest in these transaction.

Rates on repo are different from LIBOR rates, since repos are considered a secured loan whereas the LIBOR is used for unsecured interbank lending.

The US repo market is estimated to be around $4.5 trillion in 2008.[1]

Uses of Repo

Securities dealers are primary users of overnight repos. In order to meet liquidity requirements, they enter into these agreements with short-term investors such as money market funds or other investors who need certain securities for a short-term. Repos are used to finance long positions, borrow money to fund speculative investments, and cover short positions in securities. The Federal Reserve also uses repos for open-market operations where they add or decrease reserves to the banking system by trading in US Treasury securities.

Although repo transactions are backed by a collateral, i.e. the lender can sell the securities to redeem the cash, counter-party risks exists. Specifically, the other party may go bankrupt and not repurchase the securities.

References

  1. WSJ Online, retrieved October 31, 2008

http://www.bestcashloans.org.uk/

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