Reverse Repurchase Agreement

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DEFINITION of 'Reverse Repurchase Agreement'

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.

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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?

    The Federal Reserve utilizes a reverse repurchase agreement as one of two instruments used for the primary purpose of offsetting ... Read Full Answer >>
  2. What is each party's role in a reverse repurchase agreement?

    There are two principal parties in a reverse repurchase agreement. The first party, often called the seller, is offering ... Read Full Answer >>
  3. What risks does the dealer (lender) in a reverse repurchase agreement take on?

    In a conventional repurchase agreement, or repo, the dealer is the borrower and takes on similar risks to borrowers in other ... Read Full Answer >>
  4. What tax implications are there for parties involved with a reverse repurchase agreement?

    A reverse repurchase agreement – sometimes referred to as a reverse repo – is the purchase of an asset with a simultaneous ... Read Full Answer >>
  5. What is the difference between a repurchase agreement and reverse repurchase agreement?

    A repurchase agreement, or repo, is a form of collateralized lending, while a reverse repurchase agreement, or reverse repo, ... Read Full Answer >>
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    Looking at the balance sheet of any central bank, including the Federal Reserve, is not like looking at the financials for ... Read Full Answer >>

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