Repurchase agreements (repos) and reverse repos are fundamental instruments in modern financial markets. They are widely used by banks, central banks, hedge funds, and institutional investors to manage liquidity, finance securities, and control short-term interest rates.
In this guide, you will learn exactly what repo and reverse repo transactions are, how they work step by step, how interest is calculated, and how to easily compute settlement and repurchase values using our Repo & Reverse Repo Calculator.
A repo (repurchase agreement) is a short-term financing transaction in which one party sells a security and agrees to repurchase it at a later date at a higher price.
From an economic perspective:
The seller receives cash
The buyer receives collateral
The price difference represents interest
Typically short-term (overnight to a few months)
Collateralized (usually government bonds)
Very low credit risk
Widely used in money markets
📌 First leg of a repo:
The initial exchange of cash for securities — also called the settlement value.
📌 Second leg of a repo:
The repurchase of the securities at maturity — also known as the repurchase price.
A reverse repo is simply the same transaction viewed from the opposite side.
If you provide cash and receive securities, you are entering a reverse repo
If you receive cash and provide securities, you are entering a repo
This distinction is critical in:
central bank operations
liquidity management
short-term investment strategies
Aspect | Repo | Reverse Repo |
|---|---|---|
Perspective | Borrower of cash | Lender of cash |
Cash flow | Receives cash | Provides cash |
Collateral | Provides securities | Receives securities |
Risk profile | Slightly higher | Slightly lower |
Despite the difference in perspective, the cash flows and pricing mechanics are identical.
Repo interest is calculated based on:
Principal (settlement value)
Repo rate
Day count convention
Transaction length
Repo Interest = Principal × Repo Rate × (Days / Day Count)
The repurchase price is:
Repurchase Price = Settlement Value + Repo Interest
To avoid manual calculations and potential errors, you can use our interactive tool below.
Our Repo & Reverse Repo Calculator allows you to:
Calculate repo interest
Compute repurchase price
Compare repo vs reverse repo cash flows
Adjust maturity dates and rates dynamically
Use the Repo & Reverse Repo Calculator here:
🔗 Repo & Reverse Repo Calculator
This calculator supports standard market conventions and is designed for both professionals and individual investors.
Repos play a crucial role in:
Short-term liquidity management
Central bank monetary policy
Bond market stability
Interest rate transmission
For example:
The Federal Reserve uses reverse repo operations to control excess liquidity
Banks rely on repos to finance bond portfolios
Investors use reverse repos as a low-risk investment tool
Interest rate corridor management
Regulatory liquidity requirements
Collateralized lending
Although repos are considered low-risk, they are not risk-free.
Potential risks include:
Counterparty risk
Collateral valuation risk
Settlement risk
Market stress events
Proper valuation and accurate calculations are essential — which is why reliable tools and transparent formulas matter.
Suppose:
Settlement value: $1,000,000
Repo rate: 4.5%
Tenor: 30 days
Using the calculator, you can instantly determine:
Interest earned or paid
Repurchase price
Effective annualized return
This is significantly faster and safer than manual calculations.
A repo is a transaction from the cash borrower’s perspective, while a reverse repo is from the cash lender’s perspective.
Repo rates are typically fixed for the duration of the transaction.
Economically yes, but legally they are structured as a sale and repurchase of securities.
Central banks, commercial banks, hedge funds, and institutional investors.
Repo and reverse repo transactions are cornerstones of modern financial markets. Understanding how they work — and being able to calculate their cash flows accurately — is essential for anyone dealing with fixed income instruments, liquidity management, or short-term investments.
Try our Repo & Reverse Repo Calculator to quickly compute settlement values, interest, and repurchase prices with confidence.