Certified Management Accountant Practice Exam 2026 - Free CMA Practice Questions and Study Guide

A repurchase agreement, commonly known as a repo, is a financial transaction in which one party sells government securities to another party with a commitment to repurchase those securities at a predetermined price on a specified date. This type of agreement is typically short-term, often overnight, and is used primarily for short-term funding and liquidity management.

The key elements that define a repurchase agreement include the initial sale of the securities and the agreement to buy them back later, which reflects the temporary nature of the transaction. The price at which the securities will be repurchased typically includes an additional amount, representing interest, which is calculated over the duration of the agreement. This mechanism allows institutions to obtain cash quickly while providing the seller a way to maintain ownership of the securities.

In this context, the definition captures both the liquidity benefit for the seller and the low-risk investment opportunity for the buyer, as repos are usually backed by securities that have established market value, such as U.S. government Treasuries.