Repurchase agreement (Repo) is when party A sells an asset (usually fixed-income securities) to another party at one price and commits to repurchase the same from the party at a different price at a future date or (in the case of an open repo) on demand. If the seller defaults during the life of the repo, the party can sell the asset to a third party to offset his loss. The asset therefore acts as collateral and mitigates the credit risk that the buyer has on the seller.
An investment company and currently need money to make a quick investment on a new trade of corn for 2 weeks but it has problem with short amount of cash. However, the company currently own a lot of 10 years US-treasury bonds that it has purchased before. So it comes up with a repo to get quick cash for the trade
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