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December 15, 2018 

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REPURCHASE AGREEMENTS:

Short-term loans in which borrower sell assets to lenders with the agreement to purchase the assets at a later time a higher price. The assets most commonly sold are short-term U.S. Treasury securities and the higher price includes an interest payment on the loan. Repurchase agreements, also termed repos, are commonly used by the borrowers (that is, the sellers) to acquire short-term liquidity without foregoing the longer term investment returns from the assets. Repurchase agreements, along with other institutional investment near monies, are added to M2 to derive M3.
Repurchase agreements, or repos, are commonly used by banks, businesses, and other institutional investors in need of timely liquidity. Repos result when an asset, especially government securities are sold to another party, with the agreement to repurchase after a specified period. This specified period, the maturity, can be as short as overnight or as long as thirty days or so.

Because the assets sold and repurchased are usually government securities and because the maturity is short term, risk is relatively low. And because repos are relatively liquid, easily converted to spendable money, they are included as part of the institutional near monies added to M2 to derived M3.

Repos and M3

M2
June 2004 (Billions)

ComponentAmount

M2$6,292.7
Near Monies3,000.3
Institutional Money
Market Mutual Funds
1,112.2
Large-Denomination
Time Deposits
1,014.3
Repurchase Agreements535.8
Eurodollars338.0

Total M3$9,293.0

The table to the right presents values for M3 and its two key components, M2 and assorted near monies. Repurchase agreements in June 2004 were just under $540 billion. This represented about 18 percent of the near monies added to M2 and just under 6 percent of total M3.

Other M3 Near Monies

Repurchase agreements deposits are one of four near monies included in M3. The other three are: (1) institutional money market mutual funds, (2) large-denomination time deposits, and (3) Eurodollars.
  • Institutional Money Market Mutual Funds: These are deposits with nonbank mutual fund companies that are typically owned by institutions (rather than consumers). More specifically they are money market mutual funds with a minimum initial deposit of $50,000.

  • Large-Denomination Certificates of Deposit: These are certificates of deposits issued by banks with a minimum deposit of $100,000. Such certificates of deposits also tend to be owned by businesses and other institutions, rather than consumers.

  • Eurodollars: In general, these are deposits in one bank that are designated in the currency of a foreign bank. The "Eurodollar" term arose because these deposits were originally in European banks and denominated in U.S. dollars. In particular, the Eurodollar deposits included in M3 are those held by U.S. residents at banks in Britain and Canada.

<= RENTAL INCOME OF PERSONSREQUIRED RESERVES =>


Recommended Citation:

REPURCHASE AGREEMENTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: December 15, 2018].


Check Out These Related Terms...

     | Eurodollars | near monies | time deposits | certificates of deposit | savings deposits | demand deposits | checkable deposits | currency | Federal Reserve notes | plastic money |


Or For A Little Background...

     | money | money functions | M2 | M3 | liquidity | banks | financial markets | investment |


And For Further Study...

     | money creation | fractional-reserve banking | banking | Federal Reserve System | monetary economics | monetary base | monetary policy | debit card | monetary economics |


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M3
M2 plus investment types of near monies, including large denomination certificates of deposits, institutional money market deposits, and longer term repurchase agreements and Eurodollars
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