repurchase agreement: meaning, definition, pronunciation and examples
C2Formal/Technical/Financial
Quick answer
What does “repurchase agreement” mean?
A short-term loan where one party sells securities to another with an agreement to buy them back later at a higher price.
Audio
Pronunciation
Definition
Meaning and Definition
A short-term loan where one party sells securities to another with an agreement to buy them back later at a higher price.
A form of short-term, often overnight, collateralized borrowing, typically used by financial institutions and governments to manage liquidity and raise funds. The difference between the sale and repurchase price effectively represents the interest on the loan.
Dialectal Variation
British vs American Usage
Differences
No significant lexical differences. Both regions use the full term and the common abbreviation 'repo'. The underlying financial mechanism is identical.
Connotations
Highly technical financial term in both regions. Connotes institutional finance, central bank operations, and money markets.
Frequency
Equally frequent in professional financial contexts in both the UK and US. Slightly more common in US financial media due to the size of its domestic repo market.
Grammar
How to Use “repurchase agreement” in a Sentence
to enter into a repurchase agreement with [counterparty]to use [collateral] in a repurchase agreementa repurchase agreement for [amount] maturing on [date]Vocabulary
Collocations
Examples
Examples of “repurchase agreement” in a Sentence
verb
British English
- The bank decided to repo the gilts for overnight funding.
- They are repoing securities to cover the shortfall.
American English
- The firm will repo the Treasuries to meet its cash requirements.
- They repoed the bonds last Thursday.
adjective
British English
- The repo rate spiked following the announcement.
- We analysed the repurchase-agreement market data.
American English
- The repo market is a key source of short-term liquidity.
- A reverse-repo transaction was executed.
Usage
Meaning in Context
Business
The central bank used an overnight repurchase agreement to inject liquidity into the banking system.
Academic
The study analyzed the volatility spillover between the repurchase agreement market and the bond market.
Everyday
Not used in everyday conversation.
Technical
The tri-party repurchase agreement structure mitigates counterparty risk through a dedicated custodian.
Vocabulary
Synonyms of “repurchase agreement”
Vocabulary
Antonyms of “repurchase agreement”
Watch out
Common Mistakes When Using “repurchase agreement”
- Using it as a verb (e.g., 'We will repurchase agreement the bonds' is incorrect). It is exclusively a noun phrase.
- Confusing it with a 'reverse repurchase agreement', which is the transaction from the cash lender's perspective.
- Omitting the hyphen when using it as a pre-noun modifier (e.g., 'repurchase-agreement market' is more correct than 'repurchase agreement market').
FAQ
Frequently Asked Questions
Legally, it is structured as a sale and future repurchase. Economically and in practice, it is universally treated as a collateralized loan.
Common parties include commercial banks, investment banks, hedge funds, money market funds, corporations with excess cash, and central banks.
A 'repo' is the transaction from the borrower's perspective (selling securities to borrow cash). A 'reverse repo' is the same transaction from the lender's perspective (lending cash and receiving securities as collateral).
The non-defaulting party typically has the right to sell the collateral (the securities) on the open market to recover the cash lent, plus any costs.
A short-term loan where one party sells securities to another with an agreement to buy them back later at a higher price.
Repurchase agreement is usually formal/technical/financial in register.
Repurchase agreement: in British English it is pronounced /ˌriːˈpɜː.tʃəs əˈɡriː.mənt/, and in American English it is pronounced /ˌriˈpɝː.tʃɪs əˈɡriː.mənt/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “to be in the repo market”
- “to roll over a repo”
Learning
Memory Aids
Mnemonic
Think RE-PURCHASE: You sell something (securities) but you've already AGREEd to RE-PURCHASE it later, which makes it a loan in disguise.
Conceptual Metaphor
A PAWN SHOP TRANSACTION FOR BANKS (You give a valuable item as collateral for cash, agreeing to buy it back for a fee.)
Practice
Quiz
What is the primary purpose of a repurchase agreement?