Reverse repo

Financial institutions will engage in both repo and reverse repo trades. Investors also, despite their generic name, will be involved in both repo and reverse repo. Their money market funds will be cash-rich and engage in investment trades at the same time they will run large fixed interest portfolios, the returns for which can be enhanced through trading in repo. Central banks are major players in repo markets and use repo as part of daily liquidity or open market operations and as a tool of monetary policy. 

A seller in a repo transaction is entering into a repo, whereas a buyer is entering into a reverse repo. In Exhibit 10.2 the repo counterparty is Bank A, while Bank B is entering into a reverse repo. That is, a reverse repo is a... 

The repo counterparty delivers to the reverse repo counterparty 10 million nominal of the stock, and in return receives the purchase proceeds. The clean market price of the stock is 104.60. In this example no margin has been taken so the start proceeds are equal to the market value of the stock which is 10,505,560.11. It is common for a rounded sum to be transferred on the opening leg. The repo interest is 5.75%, so the repo interest charged for the trade is... 

A repo-to-maturity is a classic repo where the termination date on the repo matches the maturity date of the bond in the repo. We can discuss this trade by considering the Bloomberg screen used to analyse repo-to-maturity, which is REM. The screen used to analyse a reverse repo-to-maturity is RRM. 

A reverse repo-to-maturity is a reverse repo with matching repo termination and bond expiry dates. This shown at Exhibit 10.17. 

EXHBIT 10.17 Bloomberg Screen RRM, Used for Reverse Repo-to-Maturity Analysis, for UK Treasury 7% 2001 on 14 August 2001... 

The seller in a classic repo is selling or offering stock, and therefore receiving cash, whereas the buyer is buying or bidding for stock, and consequently paying cash. So if the one-week repo interest rate is quoted by a market-making bank as 51 5 4, this means that the market maker will bid for stock, that is, lend the cash, at 5.50% and offers stock or pays interest on borrowed cash at 5.25%. In some markets the quote is reversed. 

An ingenious method of studying distributions of quadrupole splitting and isomer shift in the ferromagnetically ordered phase of ferromagnetic amorphous materials, without interference from the distribution of hyperfine fields, has been repo rted by Kopcewicz, Wagner Gonser (1984). In this method a radio-frequency field is applied to the sample to reverse the... 

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