Fix image in the Repurchase Agreement

Aug 6th, 2022
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How to fix image in the Repurchase Agreement

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Lets say that youre in desperate need of money and I have money to lend to other people. So this is me and this is my gold chain. So you come to me and say, Sal, I need $10,000 for a kidney transplant. Can you lend me the money? Im in desperate need. And I have $10,000. Sure, Im willing to lend it to you, but its a tough economy and you never know where that moneys going to go and I dont know if youre going to be able to keep your job after going through this kidney surgery and all that. So Im very careful with my money so I want to make sure that youre good for it. So we think about it a little bit and I say, hey, that watch you have on your wrist, that looks pretty nice. You say, this watch? Let me draw the watch. And I say, yeah, that watch. Youre like, this watch I got from my great-great-grandfather and its actually worth-- I dont know-- maybe its a diamond studded Rolex of some sort and its actually worth $30,000, right? And I know that, clearly because Ive alread

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During the life of a repo, the buyer holds legal title to the collateral. In other words, the collateral is his property. He is therefore entitled to any benefits of ownership, including any coupons, dividends or other income that may be paid by the issuer of the collateral.
Risks of Repo The borrower also faces some risk: if the security value rises above the agreed-upon terms, the creditor may not return the security.
In a repo, one party sells an asset (usually fixed-income securities) to another party at one price and commits to repurchase the same or another part of the same asset from the second party at a different price at a future date or (in the case of an open repo) on demand.
Repurchase agreements are used by certain MMFs to invest surplus funds on a short-term basis and by financial institutions to both manage their liquidity and finance their inventories. Cash investors may utilize term repo to fulfill a specific need for a customized period of time.
Repos are typically used to raise short-term capital. They are also commonly used in central bank open market operations. During the early 2020s, the Federal Reserve instituted changes that massively increased the volume of repos traded, a trend it began to unwind in 2023.
Suppose the seller sells securities at $100 in the first leg taking collateral of $1000. In the second leg, the same seller will buy back the securities at $150 and return the security of $1000 to the other party involved.
In the primary debt market, repo allows dealers to fund their bids at bond auctions and their underwriting positions in syndicated bond issues at reasonable cost, thereby providing cheaper and less risky access to the capital markets for issuers, both governments and corporates.

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