Business and Personal Finance Dictionary

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• REVERSE REPURCHASE AGREEMENT, REVERSE REPO
  
  A form of secured, short-term investment in which a security is purchased with a simultaneous agreement to sell it back to the seller at a future date. The purchase and sales agreements are simultaneous but the transactions are not. The purchase is a cash transaction while the return sale is a forward transaction since it occurs at a future date. Informally known as a reverse. The buyer/investor/lender earns interest paid at rate negotiated between the parties. Rates paid on reverse repos are short-term money market interest rates and are completely unrelated to the coupon rate paid on the instrument being purchased. 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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