A contract (short-term borrowing) which is made between a buyer and seller for the temporary purchase of securities, such as treasury bills. Under this contract, the buyer agrees to resell the same securities (or their equivalent) at a specified date and usually for a fairly lower price, depending on prevailing interest rates and the lapse of time between the initial purchase and resale.
A reverse repo involves reversing of the roles of the two parties to a repo. The repo lender seeks to earn interest on cash available at its disposal.
It is also called a reverse repurchase agreement.
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