What is a repurchase agreement?
This is a short term loan where securities are sold to investors before they are bought back a short time later. The seller pays an interest rate when buying back the securities.
Where have you heard about repurchase agreements?
They’re mainly used in money markets and by central banks. A central bank may buy Treasury bills or other government papers from a commercial bank and sell them back at a later date as part of efforts to boost money supply.
What you need to know about repurchase agreements.
For sellers, repurchase agreements are a useful way to boost short-term capital. For buyers, they’re an opportunity to invest cash for a set period of time in a short-term, secure investment. Individual investors may use an agreement to finance the purchase of debt securities . In the US, repurchase agreements often involve Treasury bonds, with the Federal Reserve entering into the agreements to regulate money supply and bank reserves . The Reserve Bank of India is also known to use repurchase agreements to control the money supply in the economy.
Find out more about repurchase agreements.
From the buyer's side, they're known as reverse repurchase agreements. Find out more here.