Editing Repurchase agreement (section)

== Uses ==
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For the buyer, a repo is an opportunity to invest cash for a customized period of time (other investments typically limit tenures). It is short-term and safer as a secured investment since the investor receives collateral. [[Market liquidity]] for repos is good, and rates are competitive for investors. [[Money fund|Money Funds]] are large buyers of Repurchase Agreements.

For traders in trading firms, repos are used to finance [[long (finance)|long]] positions (in the securities they post as collateral), obtain access to cheaper funding costs for long positions in other speculative investments, and cover short positions in securities (via a "reverse repo and sale").

=== United States Federal Reserve use of repos ===
{{confusing section|date=October 2012}}

When transacted by the [[Federal Open Market Committee]] of the [[Federal Reserve]] in [[open market operation]]s, repurchase agreements add [[Bank reserves|reserves]] to the banking system and then after a specified period of time withdraw them; reverse repos initially drain reserves and later add them back. This tool can also be used to stabilize interest rates, and the Federal Reserve has used it to adjust the [[federal funds rate]] to match the [[inflation targeting|target rate]].<ref>John Hussman. [http://www.hussmanfunds.com/wmc/wmc070813.htm "Hardly a Bailout"] Hussman Funds, 13 August 2007. Accessed 3 September 2010.</ref>

Under a repurchase agreement, the Federal Reserve (Fed) buys [[United States Treasury security|U.S. Treasury securities]], U.S. [[agency security|agency securities]], or [[Mortgage-backed security|mortgage-backed securities]] from a [[primary dealer]] who agrees to buy them back within typically one to seven days; a reverse repo is the opposite. Thus, the Fed describes these transactions from the counterparty's viewpoint rather than from their own viewpoint.

If the Federal Reserve is one of the transacting parties, the RP is called a "system repo", but if they are trading on behalf of a customer (e.g., a foreign central bank), it is called a "customer repo". Until 2003, the Fed did not use the term "reverse repo"—which it believed implied that it was borrowing money (counter to its charter)—but used the term "matched sale" instead.

=== Reserve Bank of India's use of repos ===
In India, the [[Reserve Bank of India]] (RBI) uses repo and reverse repo to increase or decrease money supply in the economy. The rate at which the RBI lends to commercial banks is called the repo rate. In case of inflation, the RBI may increase the repo rate, thus discouraging banks to borrow and reducing the money supply in the economy.<ref name=repo-rate>{{cite web|title=Definition of 'Repo Rate'|url=http://economictimes.indiatimes.com/definition/repo-rate|website=[[The Economic Times]]|access-date=23 July 2014}}</ref> As of September 2020, the RBI repo rate is set at 4.00% and the reverse repo rate at 3.35%.<ref>{{Cite news|last=Das|first=Saikat|title=RBI unlikely to change repo rate this week|work=The Economic Times|url=https://economictimes.indiatimes.com/markets/stocks/news/rbi-unlikely-to-change-repo-rate-this-week/articleshow/78356036.cms|access-date=30 September 2020}}</ref>

=== Lehman Brothers' use of repos as a mis-classified sale ===
The investment bank [[Lehman Brothers]] used repos nicknamed [[Repo 105|"repo 105" and "repo 108"]] as a [[creative accounting]] strategy to bolster their profitability reports for a few days during reporting season, and mis-classified the repos as true sales. New York attorney general [[Andrew Cuomo]] alleged that this practice was fraudulent and happened under the watch of accounting firm [[Ernst & Young]]. Charges have been filed against E&Y, with the allegations stating that the firm approved the practice of using repos for "the surreptitious removal of tens of billions of dollars of securities from Lehman’s balance sheet in order to create a false impression of Lehman’s liquidity, thereby defrauding the investing public".<ref>{{Cite web|url=https://www.accountancyage.com/2010/12/21/ey-sued-over-lehmans-audit/|title=E&Y sued over Lehmans audit|date=21 December 2010|website=Accountancy Age|language=en-GB|access-date=23 September 2019}}</ref>

In the Lehman Brothers case, repos were used as [[Tobashi scheme]]s to temporarily conceal significant losses by intentionally timed, half-completed trades during the reporting season. This mis-use of repos is similar to the [[Swap (finance)|swaps]] by [[Goldman Sachs]] in the [[Greek Financial Audit, 2004|"Greek Debt Mask"]]<ref>{{Cite news|url=https://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html|title=Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt|last=Balzli|first=Beat|date=8 February 2010|work=Spiegel Online|access-date=23 September 2019}}</ref> which were used as a Tobashi scheme to legally circumvent the [[Maastricht Treaty]] deficit rules for active [[European Union]] members and allowed Greece to "hide" more than 2.3 billion Euros of debt.<ref>{{Cite news|url=https://www.reuters.com/article/goldman-sachs-greece-derivatives-idUSLDE61L1KH20100222|title=Goldman Sachs details 2001 Greek derivative trades|date=22 February 2010|work=Reuters|access-date=23 September 2019|language=en}}</ref>