Repurchase agreements are financial transactions that involve the sale of a security with an inherent mutual agreement to repurchase the same security at a future date at an agreed price which includes interest on the borrowed funds. Thus the name “repurchases agreement or repo, for short.
The reverse of the repo transaction is called ‘reverse repo’ which is lending of funds against buying of securities with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.
There are two legs to the same transaction in a repo and reverse repo. The duration between these two transactions is called the ‘repo period’.
Repos enable broker/dealers, banks and other market participants to sell securities in order to obtain immediate funds for their own liquidity management or meeting the primary reserve requirement of the central bank.
During the Repo period title to the underlying security passes to the lender. However, in Ghana the underlying securities cannot be used in any other transaction.
