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A salvation agreement, besides known as a repo, RP, or cut-rate sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy brook the securities at a later employment. The repurchase price should be greater than the true sale price, the difference effectively representing interest, sometimes c tout ensembleed the repo rate. The ships company that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, exploitation their security as validatory for a secured cash contribute at a fixed rate of interest.
* A repo is kindred to a spot sale combined with a away contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the introductory 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.
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edit] Structure and terminology
A repo is economically similar to a secured loan, with the buyer (effectively the lender or investor) receiving securities as collateral to protect him against heedlessness by the seller. The party who initially sells the securities is effectively the borrower. Almost any security whitethorn be employed in a repo, though passing liquid securities are preferred as they are to a greater extent easily disposed of in the event of a default and, more importantly, they can be easily obtained in the control surface market where the buyer has created a short position in the repo security by a reverse repo and market sale; by the same token, non liquid securities are discouraged. Treasury or Government bills, corporate and Treasury/Government bonds, and stocks may all be used as collateral in a repo transaction. Unlike a secured loan,...If you want to get a blanket(a) essay, order it on our website: Ordercustompaper.com
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