Repurchase Agreement

This is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investers, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

Repos are classified as a money-market instrument. They are usually used to raise short-term capital.