The market of repurchase agreements trades is increasing. Furthermore, repurchase agreements have grown to be one of the key options for funding for proprietary desks and hedge funds. Hence, it is very important understand how repurchase agreements work.

This article aims to document the essential information on the repurchase agreement (repo) trades.

Repurchase Agreements Are Also Known As Repos

Article Aim

It will help us comprehend the following outline:

What are repos and exactly what are their benefits?
What include the important properties of repo products?
How should we price repos?

1. What Is A Repo?

Let’s view the reason why one could need to start a repo agreement:
1.1 Understanding The problem

Let’s take into account that a bank A desires to raise cash today.

Bank A wishes to invest this amount in a business and hopes to go back the cash tomorrow. It can go in an agreement using a bank B where bank B can lend the necessary cash to bank A to get a day.

Bank B now expects the amount of money to be returned encounter. Bank B in such cases is known as the income lender and bank A is the bucks borrower. So far so great!