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In a scenario where Bank A requires quick cash and holds assets like bonds, it can utilize a repurchase agreement (repo) with Bank B, which has excess cash. In this process, Bank A (the dealer) sells its bonds to Bank B and agrees to repurchase them shortly after, usually the next day. Bank B provides the cash needed by Bank A, and later, Bank A buys back the bonds at a higher price. This arrangement allows Bank A to obtain the necessary cash, while Bank B profits from the transaction. From Bank A's perspective, it is a repo, while for Bank B, it is a reverse repo, involving the buying and selling of securities for profit. Repo agreements are utilized by various entities, including banks, mutual funds, hedge funds, and central banks.
