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Repo (Repurchase Agreement)

A repo is the sale of a security with a promise to buy it back at a set price on a set date; the seller is effectively borrowing short-term cash against collateral. In a repo the seller hands over a security such as a government bond or treasury bill and receives cash; at maturity it buys the security back at a pre-agreed higher price.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Worked example
  4. 4.Interpretation
  5. 5.Pitfalls
  6. 6.Official sources
  7. 7.Frequently asked questions

Key Points

  • The difference is the interest on the borrowing.
  • The repo market is central to short-term liquidity management by banks and institutions.
  • when a retail investor says they “did a repo” at a bank, they are in fact buying the security with a promise to sell it back, which is technically the reverse repo side.

Formula / Calculation

Repo return (for the period) = (Repurchase amount − Initial sale amount) / Initial sale amount. Annual rate = Period return × 365 / Days. Maturities are short, from overnight to a few weeks.

Worked Example

Illustrative

An institution sells a bond for TRY 1,000,000 with a promise to buy it back in 7 days for TRY 1,007,000. The period return is 7,000 / 1,000,000 = 0.7%, a simple annual rate of 0.007 × 365 / 7 ≈ 36.5%.

The figures are hypothetical values chosen to explain the concept; they are not data for any real fund, stock or market.

Interpretation

For the counterparty the same transaction is a reverse repo.

The repo market is central to short-term liquidity management by banks and institutions. The CBRT provides liquidity to banks through repos in its open market operations; the one-week repo auction rate is the policy rate. Overnight trades on the Borsa Istanbul Repo-Reverse Repo Market are used to calculate TLREF.

Pitfalls

when a retail investor says they “did a repo” at a bank, they are in fact buying the security with a promise to sell it back, which is technically the reverse repo side. Repo income may be subject to withholding tax; check the current rate when working out net return.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

A repo is the sale of a security with a promise to buy it back at a set price on a set date; the seller is effectively borrowing short-term cash against collateral.

Repo return (for the period) = (Repurchase amount − Initial sale amount) / Initial sale amount. Annual rate = Period return × 365 / Days. Maturities are short, from overnight to a few weeks.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy