Repo

RECENT NEWS
The Hindu Business Line  Sep 4  Comment 
The Reserve Bank of India on Thursday sucked out short-term surplus liquidity aggregating ₹48,387 crore from the banking system through the overnight variable reverse repo auction. The wei...
Mondo Visione  Sep 4  Comment 
The European Repo Council of the International Capital Market Association (ICMA) today released the results of its 27th semi-annual survey of the European repo market. The survey, which computes the amount of repo business outstanding on 11 June...
Financial Times  Sep 4  Comment 
During global financial crisis repo market was one of first to be hit – but industry argues that was a consequence, not a cause, of market tensions
Bloomberg  Sep 4  Comment 
China’s benchmark money-market rate fell for a fifth day on signs the central bank will keep monetary policy loose enough to support an economic recovery.
DailyFinance  Sep 2  Comment 
DAYTONA BEACH, FL--(Marketwired - September 02, 2014) - Brown & Brown, Inc. (the "Company") (NYSE: BRO) today announced that it has entered into an accelerated share repurchase program (ASR) with JPMorgan Chase Bank, National Association...
Forbes  Aug 30  Comment 
Business is picking up for the repo man, which is actually a more positive sign for the economy than maybe it appears.
SeekingAlpha  Aug 28  Comment 
By Joseph Calhoun: By Jeffrey P. Snider There is so much about the repo market that gets lost in the minute details that are more often than not counterintuitive. It can sometimes be confusing as to why counterparties might be willing to pay...




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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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