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In a scenario where Bank A needs cash quickly and owns bonds, it can engage in a repurchase (repo) agreement with Bank B, which has excess cash. In this arrangement, Bank A, referred to as the dealer, provides its bonds to Bank B and agrees to buy them back shortly after, usually the next day, at a higher price. This transaction allows Bank A to access the cash it needs while Bank B earns a profit from selling the bonds back at the predetermined higher price. From Bank A's perspective, this is a repo, while Bank B sees it as a reverse repo. Repo transactions are commonly utilized by banks, mutual funds, hedge funds, and even central banks.
