DEFINITION of 'Term Repurchase Agreement'

Under a term repurchase agreement, a bank will agree to buy securities from a dealer and then resell them a short time later at a preset price. The difference between the purchase and sale prices represents the interest paid for the agreement. Term repurchase agreements are used as a short-term cash-investment alternative.

BREAKING DOWN 'Term Repurchase Agreement'

Banks and other savings institutions that are holding excess cash quite often employ these instruments, because they have shorter maturities than certificates of deposit. Term repurchase agreements also tend to pay higher interest than overnight repurchase agreements because they carry greater interest-rate risk, since their maturity is greater than one day.
 

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RELATED FAQS
  1. 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 >>
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