Scribd Logo
Upload

Welcome to Scribd!

  • Repurchase Agreement: Purpose

    Uploaded by

    Saba Baig
    66 views1 page

    Original Title

    Repurchase Agreement

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    66 views1 page

    Repurchase Agreement: Purpose

    Uploaded by

    Saba Baig

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Repurchase Agreement

    A repurchase agreement is a short-term loan where both parties agree to the sale and future
    repurchase of assets within a specified contract period. The seller sells a Treasury bill or other
    government security with a promise to buy it back at a specific date and at a price that
    includes an interest payment.

    Purpose

    The repurchase agreement is tool used by many large financial institutions, banks, and some
    businesses. This short-term agreements provide temporary lending opportunities that help to
    fund ongoing operations. The Federal Reserve also uses the repo as a method to control the
    money supply.

    Securing the Repo

    The repo is a form of collateralized lending. A basket of securities acts as the underlying
    collateral for the loan. Legal title to the securities passes from the seller to the buyer and
    returns to the original owner at the completion of the contract.

    The collateral most commonly used in this market consists of U.S. Treasury securities.
    However, any government bonds, agency securities, mortgage-backed securities, corporate
    bonds, or even equities may be used in a repurchase agreement.

    The value of the collateral is generally greater than the purchase price of the securities. The
    buyer agrees not to sell the collateral unless the seller defaults on their part of the agreement.
    At the contract specified date, the seller must repurchase the securities including the agreed-
    upon interest or repo rate.

    You might also like