What is the repo market, and exactly why does it matter?

What is the repo market, and exactly why does it matter?

A repurchase contract (repo) is just a short-term guaranteed loan: one celebration offers securities to a different and agrees to repurchase those securities later on at a greater cost. The securities act as security. The difference between the securities’ initial cost and their repurchase cost may be the interest compensated from the loan, referred to as repo price.

A reverse repurchase agreement (reverse repo) may be the mirror of the repo deal. In a reverse repo, one celebration acquisitions securities and agrees to market them right right back for a confident return later on, frequently the moment the following day. Many repos are instantaneously, though they may be much much longer. Mehr lesen