Despite the similarities with secured loans, deposits are actual purchases. However, since the purchaser only temporarily owns the guarantee, these agreements are often considered loans for tax and accounting purposes. In the event of bankruptcy, pension investors can, in most cases, sell their assets. This is another difference between pension credits and secured loans; For most secured loans, insolvent investors would remain automatic. When the Federal Reserve`s open market committee acts in open market transactions, pension transactions add reserves to the banking system and withdraw them after a specified period; Rest first reverses the flow reserves, then add them again. This instrument can also be used to stabilize interest rates and the Federal Reserve has used it to adjust the policy rate to the target rate. [16] A decisive calculation in each repurchase agreement is the implied interest rate. If the interest rate is not favourable, a reannument agreement may not be the most effective way to access cash in the short term. A formula that can be used to calculate the real interest rate is below: the main difference between a term and an open repot is between the sale and repurchase of the securities. The re-board operations take place in three forms: indicated delivery, tri-party and detention (where the « selling » party maintains the guarantee during the life of the pension). The third form (Hold-in-custody) is quite rare, especially in development-oriented markets, due in part to the risk that the seller may intervene before the transaction is completed and that the buyer will not be able to recover the guarantees issued as collateral for the transaction. The first form – the indicated delivery – requires the delivery of a predetermined loan at the beginning and maturity of the contract. Tri-Party is essentially a form of trading basket and allows a wider range of instruments in the basket or pool.
In the case of a tripartite repurchase transaction, a third-party agent or bank is placed between the « seller » and the buyer. The third party retains control of the securities that are the subject of the agreement and processes payments made by the « seller » to the buyer. A repurchase transaction is a financial transaction in which a party sells an asset to another party, with the promise to repurchase the asset at a later predetermined date (an inverted repo is, from the securities purchaser`s point of view, the same transaction). Rest can be overnight (one day) or lasting up to one year, although some up to two years and the majority are three months or less). The reverse market allows market participants to provide mutually guaranteed loans and financial institutions use deposits primarily to manage short-term fluctuations in cash stocks, rather than financing general balance sheet funds.