Repo

RECENT NEWS
SeekingAlpha  Jul 20  Comment 
By Joseph Y. Calhoun III: By Jeffrey P. Snider I have to say that I am more than a little amused by the "news" that the US Treasury Dept. is asking for comment from the primary dealers about the recent repo fails. As Bloomberg put it...
The Hindu Business Line  Jul 17  Comment 
Spot pepper prices continued to rule steady on Thursday on limited activities. Good day-trading of about 40 tonnes was reported on the IPSTA platform, while no activities were repo...
SeekingAlpha  Jul 17  Comment 
By Joseph Y. Calhoun III: By Jeffrey P. Snider With the latest data from FRBNY in hand, the surge in repo fails authorities and certain credit market observers that were stressed over the affair, it is actually confirmation of regularity, and...
newratings.com  Jul 16  Comment 
STOCKHOLM (dpa-AFX) - The large reduction in the Sweden's repo rate and the revision of the interest rate path send a clear signal that rising inflation is the most important task for monetary policy, the minutes of the central bank meeting...
The Economic Times  Jul 8  Comment 
On the role of the Reserve Bank in keeping prices in check, she said the RBI hiked the repo rate thrice during 2013-14 by 0.25 per cent each.
The Economic Times  Jul 3  Comment 
On Thursday, banks lent a meagre Rs 200 crore compared to the total limit of Rs 20,000 crore slated for the auction.
newratings.com  Jul 3  Comment 
STOCKHOLM (dpa-AFX) - Sweden's central bank decided to lower the key repo rate by a more than expected half percentage point on Thursday to fight the risk of deflation and forecast that rate hikes may not begin until the end of 2015. The...




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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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