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Answer Posted / n.pradeep
A financial transaction in which a dealer in effect borrows
money by selling securities and simultaneously agreeing to
buy them back at a higher price at a later time. The dealer
invests the money paid for the securities, hoping to get a
higher return than he owes on his obligation to repurchase
the securities. Repurchase agreements are commonly called
"repos," and they function in a way similar to a secured
loan with the securities serving as collateral. In a reverse
repurchase agreement, the dealer in effect loans money by
buying securities and agreeing to sell them back to the
customer at a higher price at a later date. In either case,
the difference between the bought and sold price of the
securities constitutes the yield on the transaction. See
dollar reverse repurchase agreement. Also see retail repos.
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