Explain The Meaning Of Repurchase Agreement

A repurchase agreement is the sale of a security linked to a repurchase agreement of the same warranty at a higher price at a later date. It`s also called « repo. » A pension purchase contract, also known as repo, PR or Surrender and Repurchase Agreement, is a form of short-term borrowing, mainly in government bonds. The distributor sells the underlying guarantee to investors and, by mutual agreement between the two parties, buys it back shortly thereafter, usually the next day, at a slightly higher price. The financial institution that acquires the guarantee cannot sell it to another party unless the seller has not fulfilled its obligation to repurchase the guarantee. The transaction guarantee serves as a guarantee to the buyer until the seller can repay the buyer. Indeed, the sale of a security is not considered a real sale, but as a secured loan secured by an asset. There are mechanisms built into the possibility of buyback agreements to reduce this risk. For example, many depots are over-secure. In many cases, a margin call may take effect to ask the borrower to change the securities offered when the security loses value.

In situations where the value of the guarantee is likely to increase and the creditor cannot resell it to the borrower, subsecured protection can be used to reduce risk. Therefore, the seller executing the transaction would call it a « repo, » whereas in the same transaction, the buyer would refer to it as a « reverse repo. » « Repo » and « Reverse repo » are therefore exactly the same type of transaction that is described only from opposite angles. The term « reverse-repo and sale » is commonly used to describe the creation of a short position on a debt security in which the buyer immediately sells on the open market the guarantee provided by the seller as part of the repurchase transaction. At the time of the count, the buyer acquires the corresponding guarantee on the open market and the pound to the seller. In the case of such a short transaction, the buyer expects the corresponding warranty to decrease between the rest date and the billing date. A buy-back contract is a short-term loan to raise money quickly. The bank rate is explained. When state-owned central banks buy back securities from private banks, they do so at an updated interest rate, called a pension rate. Like policy rates, pension rates are set by central banks.

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