Also a repo agreement, it is a financing transaction that mainly involves government securities, where a dealer or a holder of government securities such as bills, notes, or bonds, sells the securities to a lender and simultaneously agrees to repurchase them at an agreed price on a prespecified future date. The lender receives, by virtue of such an agreement, an extremely low-risk return, as the securities are used as collateral to eliminate counterparty risks (in this sense they are similar to secured loans). Most repurchase transactions are overnight (overnight repurchase agreements) but other forms, such as term repurchase agreements and open repurchase agreements, are also common.
November 24, 2024
