Page 44 - FINAL CFA SLIDES DECEMBER 2018 DAY 14
P. 44
Session Unit 14:
51. Fixed income markets: issuance, trading and funding
LOS 51.j: Describe repurchase agreements (repos) and the risks associated with them., p.28
• A repurchase agreement is a form of short-term collateralized borrowing in which one party sells
a security to another party and agrees to buy it back at a predetermined future date and price.
The repo rate is the implicit interest rate of a repurchase agreement. The repo margin, or
haircut, is the difference between the amount borrowed and the value of the security.
• Repurchase agreements are an important source of short-term financing for bond dealers. If a
tanties
bond dealer is lending funds instead of borrowing, the agreement is known as a reverse repo.
