The value of the security is generally higher than the purchase price of the securities. The buyer agrees not to sell the security unless the seller comes from his late part of the agreement. On the agreed date, the seller must repurchase the securities, including the agreed interest rate or pension rate. Under a pension contract, the Federal Reserve (Fed) buys U.S. Treasury bonds, U.S. agency securities or mortgage-backed securities from a primary trader who agrees to buy them back within one to seven days; an inverted deposit is the opposite. This is how the Fed describes these transactions from the perspective of the counterparty and not from its own point of view. In the United States, the most common type of repo is the tripartite agreement. A large investment bank acts as an intermediary. It provides an agreement between a financial institution that needs liquidity, usually a stockbroker or hedge fund, and another with a surplus to lend, for example. B a money fund.

If the Fed wants to tighten the money supply — withdraw money from cash flow — it sells the bonds to commercial banks through a pension contract or a pension bank. Later, they will buy back the securities through a reverse pension and repay money in the system. A repurchase agreement (Repo) is a short-term secured credit: one party sells securities to another and agrees to buy them back at a higher price at a later price. The securities serve as collateral. The difference between the initial price of the securities and their redemption price is that of the interest paid on the loan called the pension rate. A pension contract, also known as a pension loan, is an instrument for borrowing short-term funds. With a pension transaction, financial institutions essentially sell someone else`s securities, usually a government, in a night transaction and agree to buy them back later at a higher price. The guarantee serves as a guarantee to the buyer until the seller can repay the buyer and the buyer receives interest in return.

In the case of an overnight loan, the agreed term of the loan is one day. However, each party can extend the duration and, from time to time, the agreement has no expiry date. Treasury or treasury bonds, corporate and treasury bonds, government bonds and equities can all be used as “guarantees” in a repurchase transaction. However, unlike a secured loan, the right to securities is transferred from the seller to the buyer.