Repo

RECENT NEWS
The Economic Times  Apr 10  Comment 
At the April 6 policy review meet, the RBI kept repurchase or repo rate unchanged at 6.25 per cent but increased reverse repo rate to 6 per cent from 5.75 per cent.
The Hindu Business Line  Apr 7  Comment 
Leaving the key policy repo rate untouched was widely expected. However, the RBI has surprised the market with a hike in reverse repo rate by 25 bps to 6 per cent thereby narrowing the policy rate c...
The Economic Times  Apr 7  Comment 
The RBI has shifted its policy focus to liquidity management by raising reverse repo rate by 25 bps and slashing MSF by an equal measure.
The Hindu Business Line  Apr 6  Comment 
Lenders can earn more interest under reverse repo; loans unlikely to get cheaper
The Economic Times  Apr 6  Comment 
RBI so far has been using reverse repo auction as well as sale of bonds and remonetisation to reduce cash that banks have been holding.
The Hindu Business Line  Apr 6  Comment 
Reacting to RBI’s monetary policy and its decision to keep the repo rate unchanged at 6.25 per cent, Shishir Baijal, Chairman & Managing Director, Knight Frank India, said: “Deep down we wished t...
The Hindu Business Line  Apr 6  Comment 
Domestic shares ended marginally lower, paring early losses after the central bank kept its repo rate unchanged as it continues to guard against any potential flare-up in inflation and on an uncertai...
The Hindu Business Line  Apr 5  Comment 
The Monetary Policy Committee, headed by RBI Governor Urjit Patel, began its two-day meeting today amid experts saying that the central bank is likely to hold the repo rate while unveiling the first ...
The Hindu Business Line  Apr 3  Comment 
State-run banks refuse to lend bonds in repo on surplus cash
The Times of India  Mar 24  Comment 
CHINA-OPENMARKET/REPO (URGENT):China's PBOC to inject a net 80 bln yuan via reverse repos for the week




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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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