A repurchase agreement (repo) which has no specific repurchase date. In other words, the term of an open repo is not predefined, and therefore it has no end date. Open repos allow banks and other financial institutions to buy securities without having to stick to a specified repurchase date. Either party to the agreement could terminate the agreement at any time after the contract date. Open repos, like ordinary repos, help investors and financial institutions to raise short-term capital. Due to the uncertainty associated with open repos, their interest rates are commonly higher than ordinary repos. The risk premium arises from not knowing how long the agreement will remain in effect.
Open repos are also known as open repurchase agreements or open RPs.
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