repurchase agreement

noun re·pur·chase agreement \ (ˌ)rē-ˈpər-chəs- \
Updated on: 15 Nov 2017

Definition of repurchase agreement

: a contract giving the seller of securities (such as treasury bills) the right to repurchase after a stated period and the buyer the right to retain interest earnings

Recent Examples of repurchase agreement from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'repurchase agreement.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of repurchase agreement

1891


Financial Definition of REPURCHASE AGREEMENT

repurchase agreement

What It Is

A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.  It is also referred to as a "repo."

How It Works

For example, trader A may sell a specific security to trader B for a set price and agree to buy back the security for a specified amount at a later date.  In actuality, however, the sale is not a real sale, but rather a loan, secured by the security.  As with collateralized loans, the security being used as collateral is "held" by trader B (in case trader A defaults and does not repayment the amount to trader A.)  The incremental amount to be repaid by trader A to repurchase the security is the amount of "interest" earned on the loan by trader B.

Repos are usually very short term transactions, mostly with overnight terms although some extend for a period of years.  For short term repos, the risks are very low.  For longer long repos, with the possibility of fluctuations in the market, collateral risk is much higher.

Why It Matters

Repurchase agreements have grown into a very large portion of the money markets, fueling the growth of short-term markets for mutual funds in trading government-backed securities, such as T-bills. Indeed, the Treasury, through its Federal Reserve bank banking system, is a large purchaser of repos, providing important liquidity for short-term market traders.


Law Dictionary

repurchase agreement

noun

legal Definition of repurchase agreement

: a contract giving the seller of securities (as Treasury bills) the right to repurchase after a stated period and the buyer the right to retain interest earnings

Seen and Heard

What made you want to look up repurchase agreement? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

ditzy

Get Word of the Day daily email!

Test Your Vocabulary

Find the Cousins

  • a-large-tree-with-many-branches
  • Which pair shares a common word ancestor?
How Strong Is Your Vocabulary?

Test your vocabulary with our 10-question quiz!

TAKE THE QUIZ
Dictionary Devil

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!