reverse repurchase agreement

Reverse Repurchase Agreement

The purchase of securities with the agreement to sell them at a higher price at a specific future date.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

Notes:

Repos are classified as a money-market instrument. They are usually used to raise short-term capital.

See also: Dollar Roll, Repo

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reverse repurchase agreement

The purchase of an asset with a simultaneous agreement to resell the asset on a given date at a specified price. The result is simply a loan at a prescribed rate for a predetermined period while holding the asset as collateral. Also called reverse. Compare repurchase agreement (RP).