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A repurchase contract (repo) is really a short-term guaranteed loan: one celebration sells securities to some other and agrees to repurchase those securities later on at a greater cost. The securities act as security. The essential difference between the securities’ initial cost and their repurchase cost could be the interest compensated regarding the loan, referred to as repo price.

A reverse repurchase agreement (reverse repo) could be the mirror of the repo transaction. In a reverse repo, one celebration acquisitions securities and agrees to offer them straight right back for a confident return at a later time, usually the moment the following day. Read more »