Recent Examples of repurchase agreement from the Web
The New York Fed’s new rate is based on the rates in the active market for a kind of short term-loan known as a repurchase agreement, or repo, which uses Treasury securities as collateral.
Following an extensive consultation, the ARRC recommended replacing Libor with a rate derived from short-term loans known as repurchase agreements, backed by Treasury securities as collateral.
That would allow the securities to be cleared in the $1.8 trillion market for tri-party repurchase agreements.
Take-up at the System's overnight reverse repurchase agreement facility averaged somewhat less than in the previous period.
These could come from offsetting different kinds of trades, for example, derivatives against sale-and-repurchase agreements.
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Financial Definition of 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.
legal Definition of repurchase agreement
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