The sale or the repurchase agreement is known as repo. It is a kind of repurchase agreement that stands for the selling of securities along with an agreement according to which the individual selling is authorized to purchase the securities back at another date. In this case the individual selling becomes a borrower and the individual purchasing acts as the lender. The securities that are exchanged in this case are considered as the collateral for the loan. The cash that is received out of the sale is referred to as the loan amount. At any time in the coming period in future the seller has the right to claim back the securities by buying them at a rate higher than the actual selling price.
Repo can be equated to a secured loan. It can be said that any security may be effectively employed in a repo, although if we look at it practically, highly liquid securities are mostly and many a times preferred as it is much more easy to dispose them off in the event of a default and, a point more significant is that it is easy to secure them in the open market where the buyer has created a short position in the repo security by way of a reverse repo and market sale; by the same notion, illiquid securities are discouraged.
The repurchase and the sale agreement guarantees and assures that the borrower would get back his securities and the lender will get his money back once the maturity date written in the contract arrives. Repo is similar to a secured loan. One can say that almost all kinds of securities will be efficiently used in case of a repo although most of the times people prefer securities that are extremely liquid as they are comparatively more simple to attain and are also simple to dispose when we talk of an open market where generally the buyer with the help of market sale and reverse repo creates a short spot in case of repo security. In the same manner the transaction of securities that are not liquid is highly discouraged.
Now we should also know about Reverse Repo Rate. A reverse repo is the same agreement from the buyers and the lenders point of view. A reverse repo rate described by the buyer is the interest rate of the loan. The buyer will describe the reverse repo rate as the same. To describe the creation of a short term position in a debt instrument, the term "reverse repo and sale" is most commonly used. In this position the buyer or the lender in the repo transaction immediately sells the security procured from the seller in the open market. When the maturity periods get lapsed then the security is procured.
Repo can be equated to a secured loan. It can be said that any security may be effectively employed in a repo, although if we look at it practically, highly liquid securities are mostly and many a times preferred as it is much more easy to dispose them off in the event of a default and, a point more significant is that it is easy to secure them in the open market where the buyer has created a short position in the repo security by way of a reverse repo and market sale; by the same notion, illiquid securities are discouraged.
The repurchase and the sale agreement guarantees and assures that the borrower would get back his securities and the lender will get his money back once the maturity date written in the contract arrives. Repo is similar to a secured loan. One can say that almost all kinds of securities will be efficiently used in case of a repo although most of the times people prefer securities that are extremely liquid as they are comparatively more simple to attain and are also simple to dispose when we talk of an open market where generally the buyer with the help of market sale and reverse repo creates a short spot in case of repo security. In the same manner the transaction of securities that are not liquid is highly discouraged.
Now we should also know about Reverse Repo Rate. A reverse repo is the same agreement from the buyers and the lenders point of view. A reverse repo rate described by the buyer is the interest rate of the loan. The buyer will describe the reverse repo rate as the same. To describe the creation of a short term position in a debt instrument, the term "reverse repo and sale" is most commonly used. In this position the buyer or the lender in the repo transaction immediately sells the security procured from the seller in the open market. When the maturity periods get lapsed then the security is procured.
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