Repurchase Agreement Diagram

11 avril 2021 - 4 minutes read

The repurchase agreement (repo or PR) and the repurchase agreement (RRP) are two key instruments used by many large financial institutions, banks and some companies. These short-term agreements provide temporary lending opportunities that contribute to the financing of day-to-day operations. The Federal Reserve also uses pension and auto-repo agreements as a method of controlling the money supply. A reverse pension contract (RRP) is an act of buying securities with the intention of returning the same assets profitably in the future – resale. This lawsuit is the opposite of the medal to the buyout contract. For the party that sells the guarantee with the agreement to buy it back, it is a buy-back contract. For the party that buys the guarantee and agrees to resell it, it is a reverse buyback contract. The reverse repo is the final step in the repurchase agreement for the conclusion of the contract. A reverse pension contract, or « reverse pension, » is the purchase of securities with the agreement to sell them at a higher price at any given time. For the party that sells the guarantee (and agrees to buy it back in the future), it is a buy-back (RP) or repo contract; for the other end of the transaction (purchase of security and consent to the sale in the future), it is a reverse repurchase agreement (RRP) or Reverse Repo.

If the Fed wants to tighten the money supply, hungry for liquidity, it sells the bonds to commercial banks through a pension purchase contract or a brief repot. Later, they will buy back the securities through a reverse pension and return money to the system. In a repo, the investor/lender makes cash available to a borrower, the loan being guaranteed by the borrower`s guarantees, usually bonds. If the borrower becomes insolvent, the guarantee is granted to the investor/lender. Investors are generally financial enterprises such as money funds, while borrowers are non-intrusive financial institutions, such as investment banks and hedge funds. The investor/lender calculates an interest rate called « pension rate » $X the granting of loans and recovers a higher amount $Y. In addition, the investor/lender may demand guarantees that require a value greater than the amount he lends. This difference is the « haircut. » These concepts are illustrated in the diagram and in the equations section. If investors are at greater risk, they may charge higher pension interest rates and demand higher reductions. A third party may be involved to facilitate the transaction; In this case, the transaction is called a « tri-party deposit. » [3] A pension contract, also known as repo, PR or « Sale and Repurchase Agreement, » is a form of short-term borrowing, mainly in government bonds.

The distributor sells the underlying guarantee to investors and, by mutual agreement between the two parties, buys it back shortly thereafter, usually the next day, at a slightly higher price. An RRP differs from Buy/Sell Backs in a simple but clear way. Purchase/sale agreements document each transaction separately and provide a clear separation in each transaction. In this way, each transaction can be legally isolated, without the other transaction being fully feasible. On the other hand, the RRPs have legally documented every step of the agreement under the same treaty and guarantee availability and right at every stage of the agreement.