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In situations where Bank A needs cash quickly and holds bonds, it can enter into 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 at a later date, typically the next day, for a higher price. This provides Bank A with the cash it urgently needs while offering Bank B a profit from the transaction. From Bank A's perspective, it is a repo transaction, and from Bank B's point of view, it is a reverse repo, as it involves buying securities with the intention of selling them back later. Repo transactions are utilized by various entities, including banks, mutual funds, hedge funds, and even central banks.
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