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When Bank A needs cash quickly, it can engage in a repurchase agreement (repo) with Bank B, which has excess cash. In this arrangement, Bank A (the dealer) sells its bonds to Bank B and agrees to repurchase them shortly after, usually the next day, at a higher price. Bank B provides the cash needed for Bank A, and when the time comes, Bank A buys back the bonds, effectively receiving the funds it required. From Bank A's perspective, this transaction is considered a repo, while for Bank B, it is a reverse repo, as it purchases securities with the plan to sell them back at a profit. Repo transactions are common among banks, mutual funds, hedge funds, and even central banks.
