Reverse Repurchase Agreement

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What is a 'Reverse Repurchase Agreement'

A reverse repurchase agreement is the purchase of securities with the agreement to sell them at a higher price at a specific future date.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

BREAKING DOWN 'Reverse Repurchase Agreement'

Repos are classified as a money-market instrument. They are usually used to raise short-term capital.

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RELATED FAQS
  1. What is the primary use of reverse repurchase agreements?

    Discover how the Federal Reserve utilizes reverse purchase agreements for the primary purpose of offsetting temporary shifts ... Read Answer >>
  2. What is each party's role in a reverse repurchase agreement?

    Learn about the role of each party in a reverse repurchase agreement transaction, and find out why it's different if the ... Read Answer >>
  3. What risks does the dealer (lender) in a reverse repurchase agreement take on?

    Read about the lender risks of participating in reverse repurchase agreements or for dealers who use the Fed's overnight ... Read Answer >>
  4. What tax implications are there for parties involved with a reverse repurchase agreement?

    Learn about the tax consequences that the buyer can face as a result of a reverse repurchase agreement ("reverse repo") with ... Read Answer >>
  5. What is the difference between a repurchase agreement and reverse repurchase agreement?

    Learn how a repurchase agreement is a form of collateralized lending and a reverse repurchase agreement is a form of collateralized ... Read Answer >>
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    Find out which items are listed as assets and liabilities on the balance sheet of the Federal Reserve, and how to read the ... Read Answer >>
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