Repo Investment Account
A repurchase agreement is sale of sec for cash with commitment to repurchase them at a specified price at a specific date.( i.e. Repo is a collaterized loan) It is usually arranged between a dealer and a counter party. A dealer borrows from the counterparty and the dealer lends its security as collateral for a given period at an agreed rate. At the end of the term, the dealer pays back the money at repurchased rate and takes back its security from the counterparty.
There are different types of repos- reverse repo, an overnight repo, term repo and open repo.
Reverse For a repo to work effectively there must be an agreement. A reverse repo is when a dealer lends money to the counterparty.
Overnight Repo If the duration of the loan is one day the agreement is called an overnight repo.
Term Repo On the other hand where the term is more than one day the agreement is a term repo. Term repos mostly have durations of three months or less.
Open Repo It is an overnight repo whose term is renegotiated.
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