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elearning > Repurchase agreements (repo)
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.
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Course Summary
- 45 minutes
- 14 question multiple choice test
- 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
Repurchase Agreements, Repo - the details
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
Repo Training Guide 
Short courses>Repo 
Training Courses > Repo & Collateral
Buy sell back transactions 
19th February 2010
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: