Repurchase Agreement (Repo)

A repurchase agreement (repo) is a short-term loan used by financial institutions. In a repo, one party sells securities—like government bonds—to another with the agreement to buy them back later at a slightly higher price. The difference in price reflects interest, making it a low-risk way for the seller to access quick funding, while the buyer earns a small return. Repos are common in financial markets for liquidity management and are usually short-term, often overnight or a few days. They help firms meet short-term cash needs efficiently while providing secure, collateralized transactions.