BANKING AFFAIRS

Detailed explanation-1: -Repo is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments. Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate.

Detailed explanation-2: -The repo market enables market participants to provide collateralized loans to one another, and financial institutions predominantly use repos to manage short-term fluctuations in cash holdings, rather than general balance sheet funding.

Detailed explanation-3: -Broadly, there are four types of repos available in the international market when classified with regard to maturity of underlying securities, pricing, term of repo etc. They comprise buy-sell back repo, classic repo bond borrowing and lending and tripartite repos.

Detailed explanation-4: -A reverse repurchase agreement (RRP), or reverse repo, is the sale of securities with the agreement to repurchase them at a higher price at a specific future date. A reverse repo refers to the seller side of a repurchase agreement (RP), or repo.

Detailed explanation-5: -The repo market fosters price discovery by facilitating primary market activity but, most crucially, by feeding liquidity in the secondary market, which fosters trading and arbitrage.