What is a reverse repo?

Reverse repo is a type of redemption agreement, which provides the seller the possibility of repurchase of the assets sold to the buyer, usually at a specific price and within the time frame, which is defined in the terms of the agreement. Contacts of this type are usually considered a cash market tool and are sometimes used as a means to create capital to meet a certain type of urgent debt. Once the debt is released and the seller is able to ensure further funding, the asset sold within the back -up report may be purchased, allowing the original owner to re -use the asset, as it considers appropriate.

One of the more common reverse repo transactions has to do with increasing capital that is needed earlier than later. In this scenario, the enterprise may decide to sell an irrelevant asset to the buyer as a means of generating income that CB is used to recover press debt. In ráThe MCI Terms of Sales The Buyer agrees to sell the asset back to the original owner in the date specified in the Terms and Conditions. The price for this type of sales Repo is usually also identified in provisions, and this price is often slightly more than the buyer originally paid for the purchase of an asset. This arrangement allows the company to repay the debt and finally buy the asset for a price lower than the closure of a business loan or the use of a trade line of the loan and the interest fees that must be repaid together with the principal.

Other Report Repos has been dealing with the sale and purchase of securities traded in the open market. The aim is to often sell securities and at the same time retain a contract that would buy the same securities in the future. The hope of the seller is that among the interim decrease, which allows them to buy at a lower speed. It is assumed that securities are expected to increase the value after completing the repo of the transaction, inveStor stood to make a nice return of the arrangement.

There is a certain degree of risk associated with the agreement of reports, especially if the agreement includes the sale of volatile securities. If the participating securities failed to reduce the value between the initial sale and the date of the repurchase, the original owner could cause a loss. In addition, if the purchased securities do not return and the values ​​continue to decrease, there is also a loss. For this reason, the use of securities as part of the report report reports to understand the potential of these possibilities, to show their future movements precisely and ensure the conditions of a repo agreement to achieve the desired result.