Repurchase Agreement Definition

A repurchase agreement involves a borrower (confusingly, sometimes called the seller or the cash receiver) selling securities to a lender (sometimes called the buyer or cash provider) while simultaneously executing a repurchase agreement. The money paid to purchase the security is always less than the money required to repurchase the security, and the so-called repo rate is the difference between the two; it is often expressed as a percentage.

A repurchase agreement allows the owner of a security to obtain cash on the security and retain the option to repurchase the security at a later date. As with any loan, there is a cost-here the repo rate-associated with obtaining a secured loan.