Repurchase Agreement

For dealers in government securities, a repurchase agreement (repo) is a type of short-term loan. In a repo, a dealer offers investors government assets for sale, typically overnight, and then buys the securities back the next day at a slightly higher price. The overnight interest rate is implicit in that modest price difference. Repos are often used to raise quick money. They are frequently used in open market operations by central banks as well. It is a repurchase agreement (repo) for the party purchasing the security and promising to sell it in the future; it is a reverse repurchase agreement (rrpa) for the party selling the security and promising to repurchase it in the future.