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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

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

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