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A buy-back contract (or simply “repo”) is the sale of a guarantee with the simultaneous agreement of the seller to buy back the same guarantee from the same buyer at an agreed price. When a pension transaction is considered from the point of view of the cash-lending part, it is commonly referred to as a reverse repurchase contract. This type of pension contract is the most common agreement on the market. A third party acts as an intermediary between the lender and the borrower. The security will be given to the third party and the third party will provide replacement guarantees. An example would be that a borrower pays a certain amount of shares for which the lender can enter into equivalent bonds as collateral. The cash paid on the initial sale of securities and the money paid at the time of the repurchase depend on the value and type of security associated with the pension. In the case of a loan. B, both values must take into account the own price and the value of the interest accrued on the loan. An open pension contract (also called on demand) works in the same way as an appointment period, except that the trader and counterparty accept the transaction without setting the due date. On the contrary, trade can be terminated by both parties by notifying the other party before an agreed daily period.

If an open deposit is not completed, it is automatically crushed every day. Interest is paid monthly and the interest rate is reassessed by mutual agreement at regular intervals. The interest rate on an open pension is generally close to the federal rate. An open repo is used to invest cash or finance assets if the parties do not know how long it will take them. But almost all open agreements are concluded in a year or two. A decisive calculation in each repurchase agreement is the implied interest rate. If the interest rate is not favourable, a reannument agreement may not be the most effective way to access cash in the short term. A formula that can be used to calculate the real interest rate is below: the trader sells securities on a daily basis to investors and the securities are repurchased the next day. The transaction allows the trader to raise capital in the short term. It is a short-term money market instrument in which two parties agree to buy or sell a security at a later date. It is essentially a futures contract. A futures contract is an agreement that must be concluded in the future at a price agreed in advance.

Despite the similarities with secured loans, deposits are actual purchases. However, since the purchaser only temporarily owns the guarantee, these agreements are often considered loans for tax and accounting purposes. In the event of bankruptcy, pension investors can, in most cases, sell their assets. This is another difference between pension credits and secured loans; For most secured loans, insolvent investors would remain automatic. The main difference between a term and an open repot is between the sale and repurchase of the securities. Ok, for some reason, I have a problem understanding what is probably a very simple concept of a buyout contract. If the borrower agrees to buy back the guarantee from the buyer, is the buyer in fact short seller? If he had a $5 million government bond, why sell it and pay interest and try to earn a small spread instead of just keeping it.