Money Market: Repos
  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion

Money Market: Repos

Repo is short for repurchase agreement. Those who deal in government securities use repos as a form of overnight borrowing. A dealer or other holder of government securities (usually T-bills) sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed price. They are usually very short-term, from overnight to 30 days or more. This short-term maturity and government backing means repos provide lenders with extremely low risk.

Repos are popular because they can virtually eliminate credit problems. Unfortunately, a number of significant losses over the years from fraudulent dealers suggest that lenders in this market have not always checked their collateralization closely enough.

There are also variations on standard repos:

  • Reverse Repo - The reverse repo is the complete opposite of a repo. In this case, a dealer buys government securities from an investor and then sells them back at a later date for a higher price
  • Term Repo - exactly the same as a repo except the term of the loan is greater than 30 days.
Money Market: Conclusion

  1. Money Market: Introduction
  2. Money Market: What Is It?
  3. Money Market: Treasury Bills (T-Bills)
  4. Money Market: Certificate Of Deposit (CD)
  5. Money Market: Commercial Paper
  6. Money Market: Banker's Acceptance
  7. Money Market: Eurodollars
  8. Money Market: Repos
  9. Money Market: Conclusion
RELATED TERMS
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  2. Implied Repo Rate

    The rate of return that can be earned by simultaneously selling ...
  3. Repo 105

    An accounting trick in which a company classifies a short-term ...
  4. Reverse Repurchase Agreement

    The purchase of securities with the agreement to sell them at ...
  5. Retail Repurchase Agreement

    An alternative to regular savings deposits. Under a retail repurchase ...
  6. Canadian Overnight Money Market Rate

    A measure or estimate of the rate at which major dealers are ...
RELATED FAQS
  1. What is the difference between a term and open repurchase agreement?

    Learn about the main difference between a term and open repurchase agreement, including when each is used and how the interest ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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