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 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 >>
  2. 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 >>
  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. Under what circumstances would someone enter into a repurchase agreement?

    Learn when investors want to enter into a repurchase agreement, such as to gain quick access to liquidity and enjoy flexibility ... Read Answer >>
  5. In a repurchase agreement (repo) why is a longer tenor more risky?

    Learn about the relationship between repo tenor length and risk, and find out how tenor affects interest rate risk and counterparty ... Read Answer >>
  6. What's the difference between the prime rate and the repo rate?

    Learn about repo rates and prime rates and their differences. Explore the uses of these rates in consumer lending and managing ... Read Answer >>
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