Repo

RECENT NEWS
Reuters  Sep 21  Comment 
The Federal Reserve on Wednesday awarded $176.84 billion of one-day, fixed-rate reverse repurchase agreements to 51 bidders at an interest rate of 0.25 percent, the New York Fed said on its website.
Reuters  Sep 21  Comment 
Wells Fargo & Co Chief Executive John Stumpf prides himself on being a banker who understands the little guy's financial problems. He has spoken publicly about growing up poor on a Minnesota farm, starting his career as a low-level repo man and...
newratings.com  Sep 7  Comment 
STOCKHOLM (dpa-AFX) - Sweden's central bank decided to keep its negative interest rate and quantitative easing unchanged on Wednesday. The Executive Board of the Riksbank maintained the repo rate at -0.50 percent as economists had...
The Economic Times  Aug 31  Comment 
One Member recommended a reduction in the policy repo rate by 50 basis points or bps (one bps is 0.01%).
The Economic Times  Aug 27  Comment 
Sithraman was responding to two tweets by an individual:" Have you suggested 2 per cent cut in repo rate? Are you aware how will it affect the rate of interest on FDs?
Reuters  Aug 25  Comment 
RBI said on Thursday it would seek legal changes to enable banks to pledge corporate bonds as collateral when borrowing funds from its overnight repo window.
MarketWatch  Aug 24  Comment 
China’s central bank offers $7.52 billion worth of 14-day reverse repurchase agreements, signaling an intention to gradually pierce a bond market bubble that has grown on heavy borrowing of short-term money.
Wall Street Journal  Aug 19  Comment 
Bank Indonesia left its interest rates unchanged for the second-consecutive month Friday, waiting for the recent easing measures to work on the economy.
Financial Times  Aug 18  Comment 
JPMorgan’s pullout of tri-party repo market shows impact of banks reshaping their business models
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...




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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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