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In essence, refers to a repurchase agreement. From the customer's perspective, the customer provides a collateralized loan to the seller.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Reverse Repurchase Agreement
A practice in which a bank or other financial institution buys securities or another asset with the proviso that it will resell these same securities or asset to the same seller for an agreed-upon price on a certain day (often the next day). Investors and financial institutions do this in order to raise short-term capital. Indeed, it is the equivalent of a short-term loan with the securities or asset serving as collateral. A reverse repurchase agreement is the same as a repurchase agreement, but from the perspective of the buyer rather than the seller. It is also called a matched sale transaction or simply a reverse.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved