Repo

RECENT NEWS
New York Times  11 hrs ago  Comment 
Banks remain vulnerable to sudden runs because of their dependence on short-term borrowing, but Dodd-Frank contains many tools that regulators can use to reduce risk, contends Jennifer Taub in Another View.
The Hindu Business Line  Apr 3  Comment 
It is gratifying to see the RBI’s commitment to inflation as well as its attempts to tweak repo borrowing norms
Mondo Visione  Apr 3  Comment 
ICMA’s European Repo Council today published a paper, ‘Collateral is the new cash: the systemic risks of inhibiting collateral fluidity’, which describes the increasing importance of collateral and how it effectively underpins the...
Reuters  Apr 3  Comment 
The Reserve Bank of India (RBI) said on Thursday it will conduct a three-day term repo for 200 billion rupees on April 4 on assessment of prevailing liquidity conditions.
The Economic Times  Apr 2  Comment 
It is good for India and you could argue that some of the hard work that has been done particularly by the RBI .
The Economic Times  Apr 2  Comment 
Rajan's comments, during a teleconference with analysts, came after the overnight cash rate was trading at 9.10/9.15 per cent on Wednesday.
The Hindu Business Line  Apr 1  Comment 
The Sensex and the Nifty were trading flat at the pre-close session on Tuesday as the Reserve Bank of India, in its first bi-monthly monetary policy statement for 2014-15, kept the repo rate uncha...
The Economic Times  Apr 1  Comment 
In line with economists and market expectations, RBI Governor Raghuram Rajan on Tuesday kept the repo rate unchanged at 8 per cent.
The Economic Times  Apr 1  Comment 
In line with expectations, RBI Governor Raghuram Rajan kept the repo rate unchanged at 8% in the central bank's monetary policy review.
The Hindu Business Line  Apr 1  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.

References

  1. WSJ Online, retrieved October 31, 2008

http://www.bestcashloans.org.uk/

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