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What is a REPO?

What is a REPO?

REPO is shorthand for Repurchase Agreement.

It is a money-market practice where two entities agree to buy/sell government securities overnight and reverse the transaction the next day for the sake of providing the selling entity with short-term cash.

Repurchase Agreements provide the selling party with short term liquidity, and are considered a money-market instrument. A third party usually acts as a clearing agent.

Government securities are sold to the purchasing party, who basically acts as a lender to the selling party while using the securities as collateral. Then the securities are bought back by the original seller the next day, with interest.

When done backwards, it is known as a reverse repurchase agreement. The Federal Reserve uses repos to keep the federal funds rate close to the target rate.

What is an Accelerated Share Repurchase?
What is a Buyback?

Keywords: money market instruments, liquidity, reference rate, federal funds rate, repurchase agreements,