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Repurchase Agreement (Repo) & Reverse Repo

A repo or repurchase agreement is a money market instrument where one party sells securities to another and agrees to repurchase those securities on a future date at a pre-determined price. In a repo transaction, the party buying the securities acts as a lender, while the original seller of the securities acts as the borrower using the securities as collateral for a secured cash loan at a fixed interest rate. The Reserve Bank of India lends money to commercial banks at the repo rate and borrows money from banks by lending securities at the reverse repo rate. Factors like inflation, liquidity, economic growth, and uncertainty can impact repo rates. Changes in repo rates then affect bank deposit rates, bank loan rates, property markets, and

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Parth Majmudar
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114 views

Repurchase Agreement (Repo) & Reverse Repo

A repo or repurchase agreement is a money market instrument where one party sells securities to another and agrees to repurchase those securities on a future date at a pre-determined price. In a repo transaction, the party buying the securities acts as a lender, while the original seller of the securities acts as the borrower using the securities as collateral for a secured cash loan at a fixed interest rate. The Reserve Bank of India lends money to commercial banks at the repo rate and borrows money from banks by lending securities at the reverse repo rate. Factors like inflation, liquidity, economic growth, and uncertainty can impact repo rates. Changes in repo rates then affect bank deposit rates, bank loan rates, property markets, and

Uploaded by

Parth Majmudar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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REPURCHASE AGREEMENT (REPO) & REVERSE REPO

WHAT IS REPO
A repo or Repurchase Agreement is an instrument of money

market The party who originally buys the securities effectively acts as a lender The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest

TRANSACTION
Securities Dealer
Collateral Day 1 Cash (Principal)

Investor

Collateral Day Securities 2 Dealer Cash (Principal + Interest)

Investor

REPO & REVERSE REPO RATES


The rate at which the RBI lends money to commercial banks is called repo rate
In a reverse repo Reserve Bank borrows money from

banks by lending securities. The interest paid by Reserve Bank in this case is called reverse repo rate.

CURRENT RATES

TYPES OF REPO MATURITY


Overnight: One-day maturity transaction
Term: Specified end date Open repo: No end date

FACTORS AFFECTING REPO RATE


Inflation
Liquidity Growth in economy Uncertainty

IMPLICATIONS OF INCREASE OR DECREASE ON REPO RATE


Bank Deposits rate Bank Loans Property Market Stock Market Investments

ADVANTAGES OF REPO INSTRUMENTS


Cheaper funding source
Safer because it has

margin as collateral High market liquidity Lucrative for dealers

THANK YOU
Hiren Agola
Gurmeet Anand Hitesh Madnani Dhiraj Kherajani Parth Majmudar Karan Poddar

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