Repository Agreement - Why sell?

[kmiklas]

Hey All,

Why would a seller agree to a repository agreement?

I understand that the investor can make a relatively quick buck by buying the securities, securing the buyback at a future date, and getting all their ca$h back with interest.

What does the seller get out of this? A pot of ca$h to use for a short time?

Ref:
http://www.investopedia.com/terms/r/repurchaseagreement.asp

Thanks for your help.

Sincerely,
Keith

Note: Not sure where this would belong. ET doesn't have a "Fixed Income" section.

 

[newwurldmn]

Yes. It's a form of short term financing.

It's basically how the money market market works.

 

[lovethetrade]

What does the seller get out of this? A pot of ca$h to use for a short time?

What @newwurldmn said is correct but it's also a tool used by the Federal Reserve (and other central banks) to conduct monetary policy.

By selling the repurchase agreement (repo), the Federal Reserve is effectively decreasing the supply of money available to financial institutions and the economy which results in an increase in interest rates. This is referred to a "tight monetary policy".