Repurchase agreement

The difference between the sale and repurchase prices produces the financing return under the agreement's convention. Securities provide collateral-like protection, but valuation, haircut, counterparty and liquidity risks remain. From the cash provider's perspective the arrangement is often called a reverse repo. Terms determine ownership, margin and settlement obligations. Repos help participants obtain liquidity or invest short-term cash, but are not simply an outright securities sale with no continuing obligation. Compare the effective cost and collateral requirements with unsecured borrowing.