A definition of repo is the financial operation that deals with the sale of securities with the agreement to repurchase them after a period of time at a certain price. It is also known as repurchase agreement, Sale and Repurchase Agreement or Repurchase Agreement.
Repo operations are usually done with fixed debt securities, especially with public debt securities such as government obligations, bonds and bills. The repurchase will be made at a specific interest rate, so the investor will get his money plus a profit.
In this type of operation, the investor makes a loan to the financial institution, which will allow them to obtain liquidity in a very short period of time.
What are REPO operations?
A repo involves an agreement whereby the buying party gives up cash and gets a financial asset, as can be a bonus, in return. You should always have a commitment that the seller will buy it back at a future date.
There are several examples of repo operations. Distinguishing by its duration, it can be one day or several months. They can also be bilateral or trilateral. In the first case, the bank that provides the repo is the custodian of the repo and is only admitted by clients when it is a solvent and trustworthy entity, while in the trilateral there is a third neutral actor who will take care of the custody of the repo. repo.
In repos with other assets, the repurchase agreement is made with other assets, such as actions, instead of fixed debt securities.
To invest in repo, you must have a securities account with the bank. Unlike other operations, one of the advantages of this option is that it presents a very low risk, although the benefits are not very high either.