The University of Manhattan. „Buyout Contracts and the Law: How Legislative Amendments Fueled the Housing Bubble,“ page 3. Access on August 14, 2020. A pension purchase contract (repo) is a form of short-term borrowing for government bond traders. In the case of a repot, a trader sells government bonds to investors, usually overnight, and buys them back the next day at a slightly higher price. This small price difference is the implied day-to-day rate. Deposits are generally used to obtain short-term capital. They are also a common instrument of central bank open market operations. Deposits with a specified maturity date (usually the next day or the following week) are long-term repurchase contracts. A trader sells securities to a counterparty with the agreement that he will buy them back at a higher price at a given time. In this agreement, the counterparty receives the use of the securities for the duration of the transaction and receives interest that is indicated as the difference between the initial selling price and the purchase price. The interest rate is set and interest is paid at maturity by the trader. A Repo term is used to invest cash or to finance assets when the parties know how long it will take them.
Like many other corners of finance, retirement operations contain terminology that is not common elsewhere. One of the most common terms in repo space is „leg.“ There are different types of legs: for example, the part of the retirement activity that originally sells security is sometimes called „starting leg,“ while the subsequent buyback is the „close leg.“ These terms are sometimes replaced by „Near Leg“ or „Far Leg.“ Near a repo transaction, security is sold. In the distant leg, he is redeemed. There are three main types of retirement operations. A buy-back contract is a short-term loan to raise money quickly. The bank rate is explained. An open pension contract (also called on demand) works in the same way as an appointment period, except that the trader and counterparty accept the transaction without setting the due date. On the contrary, trade can be terminated by both parties by notifying the other party before an agreed daily period. If an open deposit is not completed, it is automatically crushed every day. Interest is paid monthly and the interest rate is reassessed by mutual agreement at regular intervals.
The interest rate on an open pension is generally close to the federal rate. An open repo is used to invest cash or finance assets if the parties do not know how long it will take them. But almost all open agreements are concluded in a year or two. Banks and other savings banks with surplus cash often use these instruments because they have shorter maturities than certificates of deposit (CD). Long-term pension transactions also tend to pay higher interest rates than night pensions because they have a higher interest rate risk, with a duration greater than one day. In addition, collateral risk is higher for appointment deferrals than for overnight deposits, as the value of assets used as collateral is more likely to lose value over an extended period of time. The financial institution that acquires the guarantee cannot sell it to another party unless the seller has not fulfilled its obligation to repurchase the guarantee. The transaction guarantee serves as a guarantee to the buyer until the seller can repay the buyer.