Mondo Visione  Jun 29  Comment 
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Mondo Visione  Jun 22  Comment 
At its meeting today, the Alternative Reference Rates Committee (ARRC) identified a broad Treasuries repo financing rate, which the Federal Reserve Bank of New York has proposed publishing in cooperation with the Office of Financial Research, as...
The Economic Times  Jun 21  Comment 
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The Hindu Business Line  Jun 12  Comment 
Despite the clamour for a rate cut, the RBI kept its key policy rate (repo) unchanged in the latest June policy. But it lowered the SLR (statutory liquidity ratio) by 50 basis points to 20 per cent. W...
The Economic Times  Jun 7  Comment 
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The Economic Times  Jun 7  Comment 
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The Hindu Business Line  Jun 7  Comment 
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The Economic Times  Jun 7  Comment 
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The Hindu Business Line  Jun 7  Comment 
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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.


  1. WSJ Online, retrieved October 31, 2008

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