Repo

RECENT NEWS
The Economic Times  Aug 17  Comment 
RBI reduced the repo rate by 0.25 per cent to 6 per cent earlier this month.
MarketWatch  Aug 15  Comment 
Shares of Fifth Third Bancorp. rallied 2.1% in morning trade Tuesday after the regional bank disclosed a stock repurchase agreement with Goldman Sachs & Co. to buy back $990 million worth of Fifth Third's shares. Under terms of the agreement,...
The Hindu Business Line  Aug 9  Comment 
The Civil Aviation Ministry is in the last stages of finalising the modalities for the divestment of the state-owned helicopter company, Pawan Hans Helicopters Ltd (PHHL),and will be sending its repo...
The Hindu Business Line  Aug 4  Comment 
Corporate credit is expected to pick up, which will lead to asset creation and employment generation, said Melwyn Rego, Managing Director and CEO, Syndicate Bank, on the recent RBI monetary policy.“T...
The Economic Times  Aug 3  Comment 
Globally, most central banks are following a path of monetary policy normalisation.
The Economic Times  Aug 2  Comment 
RBI on Wednesday cut repo rate two days after SBI reduced its rate on savings deposits.
The Hindu Business Line  Aug 2  Comment 
The decision of the RBI’s monetary policy committee to reduce the policy repo rate by 25 basis points is a right step at right time by the regulator, according to Mahabaleshwara MS, Managing Director...
The Economic Times  Aug 2  Comment 
The reverse repo rate has been adjusted to 5.75%, and the MSFrate and the bank rate to 6.25%.
The Hindu Business Line  Aug 1  Comment 
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel started its two-day deliberations today amid expectations of at least 0.25 per cent cut in the key lending rate as 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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