Dear All,
Dear All
REPO, also known as Repurchase Agreement, is a contract under which the seller of securities, such as Treasury Bills, agrees to buy them back at a specified time and price. The investment period ranges from one day to several months, and the purchaser earns interest competitive with money market rates. The repurchase price will be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. 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.
A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan while the settlement date of the forward contract is the maturity date of the loan
For more information on the same visit: http://en.wikipedia.org/wiki/Repurchase_agreement
Thanks and Regards,
Pranav Vaidya
Article Assistant
Gokhale & Sathe
Chartered Accountants
No comments:
Post a Comment