U.s. Treasury Repurchase Agreement

In the United States, the most common type of repo is the tripartite agreement. A large investment bank acts as an intermediary. It mediates an agreement between a financial institution that needs liquidity, usually a stockbroker or hedge fund, and another with a surplus to lend, such as a money fund.B. A repurchase agreement (Repo) is a short-term secured credit: one party sells securities to another and agrees to buy them back at a higher price at a later price. The securities serve as collateral. The difference between the initial price of the securities and their redemption price is that of the interest paid on the loan called the pension rate. An open pension contract (also called on demand) works in the same way as an appointment period, except that the trader and counterparty accept the transaction without setting the due date. On the contrary, trade can be terminated by both parties by notifying the other party before an agreed daily period. If an open deposit is not completed, it is automatically crushed every day. Interest is paid monthly and the interest rate is reassessed by mutual agreement at regular intervals.

The interest rate on an open pension is generally close to the federal rate. An open repo is used to invest cash or finance assets if the parties do not know how long it will take them. But almost all open agreements are concluded in a year or two. RPs and reverse retirement operations are particularly useful in offsetting temporary fluctuations in the level of bank reserves caused by volatile factors such as float, government-held currency and cash deposits with federal reserve banks. For the party that sells security and agrees to buy it back in the future, it is a repo; for the party at the other end of the transaction, the purchase of the warranty and the consent to sell in the future, it is a reverse buyback contract. The repurchase contracts are concluded at the initiative of the New York Fed`s commercial counter (desk). The desk, at the request of the Federal Open Market Committee (FOMC), implements the monetary policy of the Federal Reserve system. The desk selects profit proposals on a competitive basis.


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