Repurchase Agreements (Repo) & Reverse Repurchase Agreements (Reverse Repo) Explained in One Minute

You have most likely come across stories about liquidity concerns when it comes to repurchase agreements (or, if you prefer, repo) quite a lot if you follow financial media outlets in general and US outlets in particular. Most people "kind of, sort of" understand why these concerns popped up but when it comes to explaining the repo (as well as reverse repo) concept... crickets.

What are these repurchase agreements anyway, and why should you care?

The same way, what are reverse repurchase agreements all about?

In one minute, this video explained the repo as well as reverse repo concepts in a way that doesn't go over your head. You will find out why the two are important when it comes to assessing the liquidity-related health of the banking system in particular or financial system in general.

Furthermore, as explained in this video, repurchase agreements are remarkably easy to understand if you follow a few simple/logical steps. And once you understand repurchase agreements, figuring out what the term "reverse repo" stands for is a piece of cake... it's ultimately all a matter of perspective, as you'll be finding out :)

[OneMinuteEconomics]

GiganticWebsites.com is a project through which I make it possible for people to build truly gigantic websites (thousands of articles each!) at ridiculously low prices. If you have a great domain you want to turn into an amazing website or an existing site you'd like to upgrade/scale, visit our website or check out the One Minute Economics presentation video below:


Please note that this comment is not an ad for a third-party service provider. GiganticWebsites.com is my baby 100% and I will personally be involved in each and every project so as to ensure the website turns out great :)

[the_ikiru]

Explained in 10 seconds: It's like a pawn shop. You pawn your diamond ring for cash. And buy it back later with interest. Hopefully, not too long.

[richmoran]

Wow. That's so simple. Thank you. Seems all the sophisticated terminology is there just to make it so regular people can't understand what is happening.

[ryanodonnell]

Just found this channel. Amazing idea. These short videos will save me from watching 30 minute videos. 👍

[saeed]

i was expecting to spend at least an hour to get this concept down. I got the basic concept by watching this video in about 5 minutes (watched more than once.) You're doing God's work son!!

[divineolame]

I didn't understand the term during my course and while studying I came across your video which really helped me understand, it was very clear, thank you very much!

[DavidAusman]

Thank you. That really helps me to understand one of the financial statements I get from a closed end fund I own!

[illaneecorona]

Thanks for helping us "visual" geniuses out here. Lol. Simple 1 minute animation is more thorough & clear than paragraphs of text or dry erase board lectures to some brains.

[dilmawijenayake]

short and sweet. I searched the internet for this and it gave me different answers and you just clarified my problem. Thank you very much!

[farheenmunavarudeen]

Picture presentation helps to grasp the concept quickly..plz do continue

[Analyst]

its money market or short term lending. Its good to mention how the loand cashed has to be 100% collateralized with the bonds, if the value of the collateral goes down a securty margin or a request for more collateral is applied to meet the value of loand cash.

[pwatom]

Excellent video. Thanks very much. Why is the Fed now so concerned about a liquidity crisis for these overnight transactions? Would be good to see a video explaining the actual numbers and stress points associated with these transactions.

[dhmlzwg]

Wonderful, easy to understand the idea

[jm-jetl]

You have earned a hearty follow for this.

[zigggzaggg]

one doubt, in repo loan, the gov securities are 1. sold and repurchased or 2. pledged, the ownership is transferred to central bank or retained by the bank themselves, and interest on gov securities is collected by whom the central bank or the bank itself, suppose if the ownership is transferred to the central bank then the interest is collected by central bank and after repurchase will the central bank return those interest to the bank or not, in case of pledging the interest payments are collected by bank i have no doubt on that, can anyone explain this soon ??

[kieranhughes]

Why and how is this useful? It just seems like an action used to keep the debt and money train rolling? Where does the money come from the interest? Can you do a video explaining in real terms the utility of these transactions?

[generemotebookkeeping]

I’m curious what network is used to perform this transaction? I am assuming it’s done both using either Chip with foreign banks, Fed Wire With domestic banks. Is this correct? I’m trying to figure out how cryptocurrency’s might enter this market?

[hell_uzer]

So the temporary shift in ownership means that Bank B can trade the securities and earn returns, as long as it gives em back to Bank A on the specified date...is that how it works???

[princeoij]

How do the banks contact each other? Who are they contacting?

[cancelled_user]

OK, but what does the Bank A need the cash for? I mean, what can they do with it overnight? If they're going to pay it back the next day, that's less than 24 hours. How do they make profit on it?