What is an agreement about the return purchase?
, also known as a repo agreement, is an agreement to buy strategies to obtain a loan from a creditor, which includes the sale and purchase of asset or security. In principle, the creditor agrees to provide a loan, knowing that the debtor will sell the creditor certainty. At the agreed later date, the debtor gets a check over the security as soon as the loan is repaid in full.
In the actual process, the redemption agreements work in a large way like any cash loan transaction, but adds a basic approach concerning the conclusion of the contract. The funds are transferred from the creditor to the debtor. At the same time, the debtor transmits the ownership of security to the creditor. The settlement date identified in a dual transaction also acts as a maturity date for a loan.
During the time the creditor has control of security, he gains interest on the transaction. The actual amount of interest is counted on the difference between the handover price and the spot price. Provided the debtor repays the loan in full higherEven until the due date, interest no longer increases at this payment moment.
Agreement on return purchase may apply to a one -off transaction between the debtor and the creditor or to the determination of a number of transactions, all the use of this strategy. The creditor and the debtor, sometimes referred to as an agreement on the Master's purchase, agrees with the ongoing loan schedule and repayments, and the agreed securities are used as collateral. This effective creates an ongoing Agreement on the Returning Redemption, as the same security can change ownership during the life of the main agreement.
It is possible to structure back purchase as a transaction overnight and effectively complete the entire cycle within twenty -four hours. Other agreements of this type may also be organized with a specific due date, between several days to a month or more. It is even possible to structure what is known as an open agreement, which meansthat the due date is not set in the stone. In principle, this means that the seller holds certainty and gets a return until the buyer has begun the loan face.
The type of security used for the strategy of one or reverse agreement may vary depending on the financial regulations of established countries of jurisdiction. The contract can be created as an agreement on the purchase of shares using shares. It may also be possible to use government bonds or coupons such as collateral with an agreement on the back of the bank. Brokers and financial advisors associated with banking and financial companies will know which type of securities can currently be used as collateral, and advise the buyer and seller.