Reverse Repo
Contents
Key Points
- The party with surplus cash takes the security as collateral and earns interest by selling it back at the agreed price at maturity.
- When the market has a temporary liquidity surplus, the CBRT can absorb it through reverse repos.
- returns are short-term and roll over at the new rate at each maturity, so they fall quickly when rates fall.
Formula / Calculation
Reverse repo return = (Resale amount − Purchase amount) / Purchase amount; annual rate = Period return × 365 / Days. The return is known at the start.
Interpretation
Money market funds and banks place short-term cash in reverse repos.
When the market has a temporary liquidity surplus, the CBRT can absorb it through reverse repos. The “repo” retail investors do at banks and the reverse repos in money market fund portfolios are technically this side of the trade.
Pitfalls
returns are short-term and roll over at the new rate at each maturity, so they fall quickly when rates fall. Counterparty and collateral risk should not be ignored in off-exchange reverse repos.
Official Sources
Official regulation and sources the definition is based on.
Pages Where This Term Appears
Related Terms
Frequently Asked Questions
What is Reverse repo?
A reverse repo is the purchase of a security with a promise to sell it back at a set price on a set date; the buyer is effectively lending short-term cash against collateral.
How is Reverse repo calculated?
Reverse repo return = (Resale amount − Purchase amount) / Purchase amount; annual rate = Period return × 365 / Days. The return is known at the start.
Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy