Reverse Repurchase Agreement
A reverse repurchase agreement (reverse repo or RRP) is a short-term, collateralized financing arrangement in which a market participant buys securities from another party with an agreement to sell them back later. It is the mirror image of a repo and is used to temporarily drain liquidity and influence short-term interest rates.
Example: A money market fund enters into an overnight reverse repo with a primary dealer, providing cash in exchange for U.S. Treasury securities with a commitment to sell them back the next day.
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