Join Mailing List

For latest news and information about Treasury and Financial Markets, enter your details below:

elearning > Repurchase agreements (repo)

Sub-menu:

Print Preview Send to a Friend Share

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.

Register for free or login to view the full publication

Course Summary

Repo menuRepo what happensRepo Q & A

Repo rateRepo haircutsRepo use

  • 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

Free to ViewTraining Courses > Repo & Collateral 100% relevant

Free to ViewShort courses>Repo, central banks and monetary policy 100% relevant

Registration RequiredRepo Training Guide 100% relevant

Registration RequiredBuy sell back transactions 71% relevant

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:

Registration RequiredMarket Guides > Forward rate agreements 65% relevant

15th September 2009

Forward rate agreements (FRAs) are contracts for difference. They are traded in the over-the-counter (bilateral or non-exchange) market. They allow the two parties involved to hedge or speculate on interest rates in the future. Perhaps the easiest way to understand a FRA is to break it down into a loan and deposit. Let's try.

Registration RequiredRepo - how it works 57% relevant

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: