Repo

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Clusterstock  Jul 23  Comment 
The release of last week’s Fed minutes was received in typical fashion by the mainstream media. They spent most of the time analyzing any use of the word “taper,” a conversation that’s well exhausted itself by now. More astute observers...
The Economic Times  Jul 23  Comment 
The Reserve Bank of India has been conducting frequent term repo auctions since introducing them in 2013 to ease the regular cash deficit in the country's financial system.
The Economic Times  Jul 22  Comment 
The inter-bank call rate, at which banks borrow and lend overnight, has dipped to 6.80%, 45 basis points lower than the benchmark repo rate at 7.25%.
SeekingAlpha  Jul 16  Comment 
OilVoice  Jul 14  Comment 
Everyone is waiting for the data that says US shale production is on the wane and it never seems to arrive. But the runes are out there for those who want to know. The EIA publish a great little repo
New York Times  Jul 7  Comment 
The case shows how hard it is for sophisticated parties to know precisely where their interests lie with regard to special treatment in bankruptcy.
Mondo Visione  Jul 6  Comment 
LCH.Clearnet Group today announces that it has appointed John Vinci as Head of its Repo Clearing Business, North America. John will join LCH.Clearnet on 13 July and will be responsible for establishing LCH.Clearnet’s RepoClear service in the US....
The Economic Times  Jul 3  Comment 
The central bank issued 85 billion yuan ($13.70 billion) of reverse repurchase agreements (repos) this week, the most since early February.
MarketWatch  Jul 2  Comment 
Sweden's Riksbank has cut its main repurchase, or repo, rate to minus 0.35% from minus 0.25%, saying the Swedish krona has become stronger than the central bank had forecast. "In the euro area, economic activity is strengthening, but the events in...




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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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