A repurchase contract (repo) is just a short-term guaranteed loan: one party offers securities to a different and agrees to repurchase those securities later on at an increased cost. The securities serve as security. The difference between the securities’ initial cost and their repurchase cost may be the interest compensated regarding the loan, referred to as repo price.
A reverse repurchase agreement (reverse repo) may be the mirror of a repo deal. In a reverse repo, one celebration purchases securities and agrees to market them straight back for an optimistic return later on, usually the moment the day that is next. Continue reading What’s the repo market, and just why does it matter?