What type of repurchase agreement would the dealer need if there was a possibility that it could take several days to sell the s

Question

inessss [21]

1 year ago

14

What type of repurchase agreement would the dealer need if there was a possibility that it could take several days to sell the s

ecurities?

Social Studies

1 answer:

liberstina [14] · Answer 1 · 2024-08-31T16:28:43+03:00

Overnight Repurchase Agreement is the type of repurchase agreement which the dealer would require if there is a possibility that it could take several days to sell the securities.

Overnight Repurchase Agreement is an elaborative term for borrowing by dealers of government securities for a short duration of time. It is also known as Repo rate. In this process a dealer sells various government securities to distributors or investors on overnight basis or in the form of short term secure loan. This can be bought back whenever needed at higher prices to gain better profits.

These securities act as collateral for the dealers which they consider as a safe investment. It is an effective alternative investment used in open market operations. repo markets facilitates liquidity of cash (easy flow of cash) and other securities in an economical system which benefits the overall market and sustains high inflation. Thus the allocation of capital in the economy is smoothened which further enhances the GDP (Gross Domestic product) of the country.

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