A pension contract (PR) is a short-term loan in which both parties agree to the sale and future repurchase of assets within a certain contract term. The seller sells a treasury order or other state security with the promise to repurchase them at a given time and at a price that includes an interest payment. Retirement transactions are usually short-term transactions, often literally overnight. However, some contracts are open and do not have a fixed due date, but the reverse transaction is usually done within one year. The value of the security is generally higher than the purchase price of the securities. The buyer agrees not to sell the security unless the seller comes from his late part of the agreement. On the agreed date, the seller must repurchase the securities, including the agreed interest rate or pension rate. Mr. Robinhood.
“What are the near and far legs in a buyout contract?” Access on August 14, 2020. The main difference between a term and an open repo is between the sale and repurchase of the securities. A reverse buyback contract (Reverse repo) is the mirror of a repo transaction. In a reverse, a party buys securities and agrees to resell them later, often the next day, for a positive return. Most deposits are overnight, although they may be longer. Pension transactions are generally considered to be a reduction in credit risk. The biggest risk in a repo is that the seller does not maintain his contract by not repuring the securities he sold on the due date. In these cases, the purchaser of the guarantee can then liquidate the guarantee in an attempt to recover the money he originally paid. However, the reason this is an inherent risk is that the value of the warranty may have decreased since the first sale and therefore cannot leave the buyer with any choice but to maintain the security he never wanted to maintain in the long term, or to sell it for a loss. On the other hand, this transaction also poses a risk to the borrower; If the value of the guarantee increases beyond the agreed terms, the creditor cannot resell the guarantee.
A sale/buy-back is the cash sale and pre-line repurchase of a security. These are two separate pure elements of the cash market, one for settlement in advance. The futures price is set against the spot price in order to obtain a market return. The basic motivation of Sell/Buybacks is generally the same as in the case of a conventional repo (i.e. the attempt to take advantage of the lower financing rates generally available for secured loans, unlike unsecured loans). The profitability of the transaction is also similar, with interest on the money borrowed from the sale/purchase being implicitly included in the difference between the sale price and the purchase price. RPs and reverse retirement operations are particularly useful in offsetting temporary fluctuations in bank reserves caused by volatile factors such as float, government-owned currency and cash deposits with federal reserve banks. Fed officials concluded that the dysfunction of the very short-term credit markets could be due to an excessive contraction of their balance sheets and responded by announcing plans to purchase about $60 billion of short-term treasury bills per month for at least six months, essentially increasing the supply of reserves in the system. The Fed was no longer happy to say that this was not a new round of quantitative easing (QE).