Repo

RECENT NEWS
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...
The Economic Times  Aug 22  Comment 
It said it would conduct 14-day term repo auctions four times during a two-weekly reporting cycle, or every Tuesday and Friday, from Sept. 5.
The Hindu Business Line  Aug 21  Comment 
In a bid to boost further liquidity into the banking system, RBI will conduct auction for bonds worth Rs 61,500 crore on Friday, RBI said. “The Reserve Bank will conduct a 14...
New York Times  Aug 15  Comment 
A spotlight on derivatives, risky mortgages and repo markets -- practices all linked to the 2008 financial crisis -- gave DealBook a certain "Groundhog Day" quality this week.
Benzinga  Aug 15  Comment 
ZAIS Financial Corp. (NYSE: ZFC) ("ZAIS Financial" or the "Company") today announced that it has closed a $100 million committed financing facility for the purchase of residential whole loans. The facility is in the form of a Master Repurchase...
Mondo Visione  Aug 14  Comment 
Moscow Exchange will offer repo transactions with the Bank of Russia (in trading modes 'repo with the Bank of Russia: repo auction' and 'repo with the Bank of Russia: fixed rate') and interdealer repo transactions (in trading mode 'repo with...
New York Times  Aug 14  Comment 
The housing recovery is creating a market for delinquent-mortgage bonds. | A call for a more ambitious overhaul of the repo market. | William A. Ackman pitches for an I.P.O. of his Pershing Square Holdings fund. | A takeover battle for Chiquita...




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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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