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What is Repo and Reverse Repo? What are the different between them?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ROSHNI asked about 3 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 jitendra etikala answered almost 3 years ago

**Definition of Repo Rate** Repurchase Option or a Repo rate is the rate at which the Reserve Bank of India (RBI) grants loan to the commercial banks against government securities. It is charged on Repurchase Agreement i.e. an agreement between two parties in which one party sells its securities to other promising that the securities would be bought back over a specified period. For controlling the inflation, RBI uses this tool whereby the rate is increased to reduce the commercial bank’s borrowings, which in return pulls down the inflation. **Definition of Reverse Repo Rate** Reverse repo rate is exactly opposite to a Repo rate, it is an interest rate at which the commercial bank grants loan to the Central Bank of India i.e. RBI. The Reverse repo rate is always lower than a repo rate. This is a monetary tool used by RBI to control the money supply in the country, i.e. with the increase in the rate, the flow of money in the economy decreases as the banks will now invest its money with RBI due to safety and lucrative interest rates.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

--A Repurchase Agreement (REPO) is an agreement of sale of a security with a commitment to repurchase or buy the security back at a specified price and on a specified date whereas Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. --Repo rate is the rate of interest at which the reserve bank grants short term loans to commercial banks to meet shortfall of funds faced by these banks, Reverse repo is the rate of interest at which the reserve bank borrows money from commercial banks to absorb liquidity in the economy. --It is a monetary policy instrument which can be used to control the money supply in the country. --The reverse repos are essentially collateralized loans to the Fed, for a period of one day. The Fed has been testing these transactions since September and will continue through this year. Fed officials hope the interest rate they set on the reverse repos will set a floor underneath short-term interest rates generally.

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Data?1494421730 rohit awasthi answered about 3 years ago

Dear Friend > Repo and Reverse Repo Repo A Repurchase Agreement (REPO) is an agreement of sale of a security with a commitment to repurchase or buy the security back at a specified price and on a specified date . Reverse Repo Reverse Repo is a term used to describe the opposite side of a repo transaction. Reverse Repo is a purchase of security with a commitment to sell at a pre-determined price and date .Accordingly, there are two possible motives for entering into a reverse repo: short-term investment of funds, or to obtain temporary use of a particular security. Difference Between Repo & Reverse Repo- --Reverse repo is a term used to describe the opposite side of a repo transaction. --The term Repurchase Agreement (Repo) and Reverse Repurchase Agreement (Reverse Repo) refer to a type of trans- action in which money market participant raises funds by selling securities and simultaneously agreeing to repurchase the same after a specified time generally at a specified price, which typically includes interest at an agreed upon rate. --Such a transaction is called a Repo when viewed from the perspective of the seller of securities (the party acquiring funds) and Reverse Repo when described from the point of view of the supplier of funds. --Thus, whether a given agreement is termed a Repo or a Reverse Repo depends largely on which party initiated the transaction. Indian Repo market is governed by Reserve Bank of India. At present Repo is permitted between 64 players against Central and State Government Securities (including T-Bills) at Mumbai Thanks

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Data?1494421738 samkit kothari answered about 3 years ago

> `Repo Rate` Repo rate is the discount rate at which banks borrow from RBI. Reduction in repo rate will help banks to get money at a cheaper rate, while increase in repo rate will make bank borrowings from RBI more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. > Reverse repo Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. > `Note:-` repo rate is always higher than the reverse repo rate.

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Picsjoin 2017224123730582 Archana answered about 3 years ago

Hie Roshni, **Repo and Reverse Repo can be explained as follows :-** **Repo rate :** - Bank sells the security to RBI to raise money. When banks sell security , banks promise to buy back the same security from RBI at a predetermined date with an interest at the rate of REPO . It is actually a repurchase agreement. **Reverse repo :** - Reverse Repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. Thus, repo rate is always higher than the reverse repo rate. **Difference between Repo Rate and Reverse Repo Rate :-** • Repo rate is the rate of interest at which the reserve bank grants short term loans to commercial banks to meet shortfall of funds faced by these banks. • Reverse repo is the rate of interest at which the reserve bank borrows money from commercial banks to absorb liquidity in the economy • Both repo rate as well as reverse repo are important tool to control money supply in the economy

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Data?1494421636 Deep answered about 3 years ago

The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

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