Question

QUESTION 2 What is a repurchase agreement and what is a reverse repo? How do they function and how do they differ? What does it represent? Who are the main participants of the repo market? Please explain clearly max. in 6 sentences. 3 (12pt) TTTT Paragraph : Arial XD0Q O fx Mashups - Path:p Words0 QUESTION 3 Click Save and submit to save and submit. Click Save All Answers to save all answers. Save All Answers Close MacBook Pro

what is a repurchase agreement and what is a reserve repo? how do they function and how do they differ? what does it repreaent? who are the main participants of the repo market?

Answer 1

The repurchase agreement (repo) is a kind of short term borrowing that is used in money markets and it involves purchase of securities with the agreement to sell them back at a specific date (this is usually for a higher price). On the other hand while reverse repo represent the same transaction like the repo it should be noted that for the party that is originally buying the security and agreeing to sell in the future it is a reverse repo. For the party that is originally selling the security and hence agreeing to repurchase it in the future it is repurchase agreement. The main participants of the repo markets are primary dealers, central banks, banks, insurance companies, mutual funds, hedge funds etc. All these participants look for operational efficiency, security and low funding costs that are available in the repo market.