Definition of Reverse Repurchase Agreement

A fully collateralized loan that results in the purchase of securities with the intention of reselling them to the borrower at a higher price. The Higher price represents the buyer’s / lender’s interest.

Applying "Reverse Repurchase Agreement" to Securities Exams:

In a reverse repurchase agreement, the institutional investor initiates the transaction by selling the securities to the dealer and agrees to repurchase them at a later time. In a reverse repurchase agreement the borrower (seller) is the institution, not the dealer.

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