Repo and Reverse Repo Rate

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REPO AND REVERSE REPO RATE PRESENTED BY: CHAITHRA ASHOK REPO RATE ã Repo rate or repurchase rate is the rate at which banks borrow money from the central bank (read RBI for India) for short period by selling their securities (financial assets) to the central bank with an agreement to repurchase it at a future date at predetermined price. ã It is similar to borrowing money from a moneylender by selling him something, and later buying it back at a pre-fixed price. ã The Current repo rate is 8.5%
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  REPO AND REVERSE REPO RATE PRESENTED BY:CHAITHRA ASHOK   REPO RATE   ã Repo rate or repurchase rate is the rate at whichbanks borrow money from the central bank (read RBIfor India) for short period by selling their securities(financial assets) to the central bank with anagreement to repurchase it at a future date atpredetermined price. ã It is similar to borrowing money from a money-lender by selling him something, and later buying itback at a pre-fixed price. ã The Current repo rate is 8.5%.   Calculations Involved in Repo   ã Repo transaction involves two legs of calculation. The first iswhen cash and securities are borrowed and second is whenthey are returned at the end of the term.The settlement amount involves two components: ã Values of the transaction price. ã Accrued interest from the previous coupon date to the dateon which transaction is initiated. ã Second leg involves: ã Repo interest for the term of repo ã Accrued interest from the previous coupon date to the end of repo term ã Return of principal amount borrowed.   Example: ã Trade date : 20 th July 2008 ã Trade price : Rs 1008.50 ã Face Value : Rs 10000000 (10000 bonds with a facevalue of Rs 1000 each) ã Security : 12.5% ã Last coupon date : 1 st July 2008 ã Repo rate : 7.5% ã Repo term : 2 days
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