Formula For Repurchase Agreement

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A sell/buyback is the cash sale and redemption at the front of a security. These are two separate direct spot market transactions, one for futures settlement. The futures price is set in relation to the spot price in order to obtain a return on the market. The fundamental motivation for sales/redemptions is usually the same as for a classic repo (i.e.: The attempt to take advantage of the lower funding rates generally available for secured loans compared to unsecured loans). The profitability of the operation is also similar, with the interest on the money borrowed by the sale/redemption implicitly in the difference between the sale price and the purchase price. The same principle applies to Repos. This helps protect the lender from the possibility that rising interest rates will reduce the value of collateral. Most repo agreements mark the guarantees that will be put on the market on a daily basis. If the value of the collateral is less than the required margin, the borrower may be subject to a margin call, or the repo may be revalued by reducing the value of the loan. In both cases, the borrower must send more money to the lender to maintain the margin or reduce the outstanding capital. The Fed uses different terms to describe rests and reverse deposits.

A repo system is when the Fed lends money to traders based on their guarantees. Therefore, the Fed describes its reverse repo with respect to the other party`s point of view (which obviously refers to the parties in general as a system) and not its own. Similarly, a client repo is a system repo that the Fed performs on behalf of a foreign central bank. When the Fed lends money by selling collateral, it is called a matched securities sale agreement that is normally reduced to Just Matched Sale. As part of a repo agreement, the Federal Reserve (Fed) buys U.S. Treasury bonds, securities from U.S. authorities or mortgage securities from a primary trader who agrees to buy them back generally within one to seven days. an inverted repo is the opposite….

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