elearning > Repurchase agreements (repo)

Sub-menu:

Learn about the following:

How repo works. The terms used in repo transactions. The repo rate and why it changes. The risks of doing repo. How some risks can be reduced. How repo trades can be used.

Buy the full e-learning course now for just £14.95

If you have already purchased this e-learning course, login to view it.

Course Summary

Repurchase Agreements, Repo

How repo works
The terms used in repo transactions
The repo rate and why it changes
The risks of doing repo
How some risks can be reduced
How repo trades can be used

45 minutes

14 question multiple choice test

1. How repo works

Why the market has grown
The buyer and seller
The terms of the trade
Collateral
Repo rate
Credit and market risk
Coupon payments
Failure to repay
Reduced credit risk for buyer

2. The repo rate

Relationship to Libor
General collateral
Special collateral
Affect of repo rate on buyer and seller

3. Repo is not risk free

Collateralised nature of trade
Over reliance on collateral
Market and credit risks
Liquidity risk
Haircuts and over collateralisation
Margin calls

4. How repo is used

Facilitating more trades
Central banks adding liquidity
Borrowing bonds to cover short positions
Trading repo rates (bid – offer)

5. Summary

6. Test

Related Documents

Training Courses > Repo & Collateral

A buy/sell back is a spot sale of a security with a simultaneous forward purchase. Buy/sell backs are sometimes used instead of repo transactions. The main difference between the two structures is that in a repo, the repo rate is used to determine the sum of money that is repaid at maturity. In a buy/sell back the deal is quoted as a spot and forward security price. The actual collateral amounts and cash payments are the same in both structures. Here is an example:

Repo - how it works

15th February 2010

A repo involves two parties. One party, (the seller), gives collateral, normally bonds, to the other party, (the buyer). In return the buyer pays a cash amount to the seller. The cash amount involved is based on the market price of the collateral plus its accrued interest. The seller does a repo, the buyer a reverse repo:

Repo risks

6th February 2010

Repo trades involve credit risk, market risk, liquidity risk and operational risk the counterparties involved. In the following the term "buyer" refers to the party that receives the collateral at the start of the trade and the term "seller" refers to the party receiving cash at the start of the trade: