What is a repurchase agreement (repo)?

A repurchase agreement, or repo, is an arrangement in which one party sells financial assets, typically securities, to another party with the agreement to repurchase those assets at a later date for a predetermined price. This type of transaction is used primarily for short-term financing. The selling party receives immediate funds, while the buying party gains the security as collateral until the sale is reversed.

This mechanism allows institutions to manage liquidity and engage in short-term borrowing against the value of their assets. In the context of financial markets, repos are often used by banks and other financial institutions to secure short-term cash flow needs.

The other options do not accurately describe a repurchase agreement. Long-term loans secured by property refer to mortgages or similar arrangements, contracts for future financial transactions involve derivatives or options markets, and investment funds focusing on short-term debts describe money market funds rather than the operational mechanism of repos.