repurchase agreement

A repurchase agreement (repo) is a short-term financial transaction where one party sells securities—like government bonds—to another with a promise to buy them back later at a slightly higher price. It functions like a secured loan, with the securities serving as collateral. Repos help institutions raise quick cash or earn interest with minimal risk, as the security ensures repayment. They are commonly used in financial markets for liquidity management, often lasting just overnight or for a few days. Essentially, a repo is a short-term, collateralized borrowing arrangement between financial institutions.