Business and Personal Finance Dictionary

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• REPURCHASE AGREEMENT (RP)
  
  A form of secured, short-term borrowing in which a security is sold with a simultaneous agreement to buy it back from the purchaser at a future date. The purchase and sales agreements are simultaneous but the transactions are not. The sale is a cash transaction while the return purchase is a forward transaction since it occurs at a future date. The seller/borrower pays interest to the buyer at a rate negotiated between the parties. Rates paid on repos are short-term money market interest rates and are completely unrelated to the coupon rate paid on the instrument being purchased. Informally known as repos. Sometimes called a classic repo to distinguish between these transactions and sell/buybacks. Every transaction where a security is sold under an agreement to be repurchased is a repo from the seller/borrower's point of view and a reverse from the buyer/lender's point of view. Repos and reverses are often used to finance investment purchases, especially by traders.
  
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