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A repurchase agreement or repo is a transaction in which Party A sells a security to Party B and agrees to repurchase it at a specific date in the future at an agreed price. Repos allow Party B to borrow securities and sell them short in the belief that they can be bought back in the market at a cheaper price by the time they must be returned to Party A. The advantage for party A is that it earns added income by lending the securities. Through this operation Party B is effectively a borrower of funds to finance further purchases of securities, and he pays interest to the holder, trader A. The rate of interest used is known as the repo rate. A reverse repo is the reverse situation, whereby the Party A agrees to buy securities from Party B and sell them back at a pre-agreed price and date. Party B is then effectively the lender of funds. Some central banks use repos and reverse repos in government debt as part of their money market operations. A repo agreement allows a borrower to use a security as collateral for a loan at a fixed rate of interest.