Daily in the financial markets the set of bargains is concluded, and some part from them is constituted by repo transactions. An essence of these transactions in opportunity for creditors to lower the risks and for receivers is a chance to obtain the credit on extremely advantageous conditions.
Some kinds of repo transactions are conventional:
- Direct repo operation is a simple sales agreement with the accepted obligation of the subsequent return redemption;
- The return repo operation (reverse repo) is a purchase agreement with the accepted obligation of the subsequent sale;
- A stock exchange transaction of a repo – the transaction performed in the stock exchange market;
- “Overhight” the repo is a repo transaction in which accomplishment of the return transaction happens next day, and thus both parts (today – the first, tomorrow – the second) are cash.
Transactions under the name repo are standardized by the legislation and are assessed with taxes and consist that the sales agreement is signed there is nobody valuable property with opportunity further, its redemption at the price agreed in advance.
The most widespread among repo transactions is a security transaction because they are exempted from payment of the VAT, besides their purchase and sale much more simply and quicker, than at any other asset type is arranged.
Advantages from the conclusion of repo transactions are got by both creditors and borrowers. The buyer becomes the full owner of any property, and he isn’t excited any more by creditworthiness of the seller. The unique risk is a danger of reduction of the liquidity of object of the transaction.
Forex Derivatives 