Commodity Repo Agreement

If the Federal Reserve is one of the parties to the transaction, the PR is called a “system repo,” but when they are acting on behalf of a client (for example. B of a foreign central bank), it is called “client repo”. Until 2003, the Fed did not use the term “Reverse Repo” – which it believed was lending money (contrary to its charter) – but rather the term “matched sale”. In particular, Party B acts as a cash lender in a repo, while Seller A acts as a cash borrower and uses the collateral as collateral; in a reverse repo (A), is the lender and (B) the borrower. A repo is economically similar to a secured loan in which the buyer (effectively the lender or investor) receives securities as collateral in order to guard against the seller`s default. The party who first sold the securities is effectively the borrower. Many types of institutional investors participate in repo operations, including investment funds and hedge funds. [5] Almost all securities can be used in a repo, although highly liquid securities are preferred because they are easier to sell in the event of default and, more importantly, they can be easily bought on the open market, where the buyer has created a short position in the repo security through a reverse-repo and a sale in the market. For the same reason, illiquid securities are discouraged.

There are a number of variations that a goods repo structure can take; For example, the seller may have an obligation or option to redeem the goods in the future, or the seller may act as a “service provider” to monitor the goods after they have been sold to the buyer and to collect them. This practice note discusses the different structures that can be taken care of and the benefits and risks for each party when entering into such transactions. With regard to the lending of securities, the temporary obtaining of the title is intended for other purposes, such as. B hedging short positions or use in complex financial structures. Securities are generally lent for a fee and securities lending transactions are subject to other types of legal agreements than rest. When repo transactions are settled by the Federal Open Market Committee of the Federal Reserve as part of open market operations, repo transactions add reserves to the banking system and then withdraw them after a certain period of time; Reverse-rests first remove reserves and then add them again. This instrument can also be used to stabilize interest rates and the Federal Reserve has used it to adjust the federal funds rate to the target rate. [16] 1) The dependence of the tripartite repo market on intraday credit provided by Open clearing banks has no end date set at closing. .

. .

Posted in Uncategorized   

Author: swillans