Repurchase Agreement (repo)

A financing arrangement used primarily in the government securities market whereby a dealer or other holder of government securities sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed price which will provide the lender an extremely low risk return. Repos are popular because they can virtually eliminate credit problems. The repo market is enlarged and enhanced by its use in federal board open market operations in the United States. Repos operate slightly differently in other markets.