What Is The Purpose Of A Repurchase Agreement

The difference between the initial price of the securities and their redemption price is the interest paid on the loan, called the repurchase agreement rate. In a repurchase agreement, a trader sells securities to a counterparty with the agreement to buy them back at a higher price at a later date. The trader raises short-term funds at a favorable interest rate with a low risk of loss. The transaction is completed by a reversepo. That is, the counterparty resold them to the dealer as agreed. .