Repo

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The Hindu Business Line  Aug 12  Comment 
State Bank of India Chairman Arundhati Bhattacharya on Friday emphasized that transmission of repo rate cuts into lending rates is not strictly one-to-one as banks have about 40 per cent of their depo...
The Hindu Business Line  Aug 10  Comment 
Medical colleges may soon be allowed to run as “for-profit” institutions, if the recommendations of a committee on reform of the Medical Council Act are taken into consideration. The preliminary repo...
The Hindu Business Line  Aug 9  Comment 
Keeps repo rate unchanged at 6.5%; culture of clean-up seems well-embedded, says RBI chief
The Hindu Business Line  Aug 9  Comment 
The evening out of surpluses and shortages does not happen seamlessly. There is volatility in the overnight call market
The Hindu Business Line  Aug 9  Comment 
As was widely expected, the outgoing Reserve Bank of India Governor Raghuram Rajan maintained status quo on the policy rate in his last policy review on Tuesday. The repo rate (the interest rate a...
newratings.com  Aug 4  Comment 
PRAG (dpa-AFX) - The Czech central bank held its key interest rate steady on Thursday, and reaffirmed its currency ceiling. The Czech National Bank Board held the two-week repo rate at 0.05 percent, in line with economists' expectations....
Clusterstock  Jul 22  Comment 
NEW YORK (Reuters) - JPMorgan Chase & Co plans to exit its business of settling government securities for most dealers, including some trades in a part of the key repurchase-agreement market, by the end of next year, Bloomberg reported on...
Clusterstock  Jul 15  Comment 
NEW YORK (Reuters) - The U.S. Federal Reserve on Friday awarded $41.16 billion of three-day, fixed-rate reverse repurchase agreements to 29 bidders at an interest rate of 0.25 percent, the New York Fed said on its website. On Thursday, the Fed...
The Economic Times  Jul 14  Comment 
Retail inflation measured on Consumer Price Index (CPI) stood at 5.77 per cent in June as against 5.76 per cent in the previous month and 5.40 per cent in June last year.
newratings.com  Jul 6  Comment 
STOCKHOLM (dpa-AFX) - The Swedish Krona erased its early losses against the U.S. dollar in early European deals, and climbed after Sweden's central bank kept its negative interest rate unchanged. The Executive Board of the Riksbank decided...




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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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