What does Repurchase Agreement or Repo mean?
A Repurchase agreement or Repo is an agreement for the simultaneous purchase and sale of a security, usually Treasury Bills and Bonds. Repo deposits are money market investment instruments to invest short term and medium term funds. While there is no restriction on the amount that can be invested, the bank may impose minimum requirements for operational reasons. Interest is payable at maturity.
What does Reverse Repurchase Agreement or Reverse Repo mean?
A Reverse Repo is a form of short-term borrowing for holders of government securities. The customer sells the government securities to the bank, usually for a short tenor, and buys them back at the end of the term. Reverse Repos are money-market instruments that are usually used to raise short-term capital.
Note: For the party selling the security (and agreeing to repurchase it in the future) it is a repo, whereas for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
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