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Published: 22nd February 2010 by William Webster
There are two parties to a repurchase transaction (repo). The party that provides (sells) the collateral is doing a repo. The party that takes (buys) the collateral is doing a reverse repo. Let's see this in a diagram:
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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:
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:
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.