If you have highly liquid securities in your assets (e.g., government bonds, treasury bills), you can pledge them to secure additional liquidity. These transactions are called repo transactions
Repo transactions deal:
- in government bonds,
- treasury bills issued by the Ministry of Finance,
- other company bonds or bank bonds.
They are usually agreed for short maturity terms, but can it be longer, up to a year. The product enables a buyer to fulfil any possible need for liquid assets without selling securities.
How do Repo operations function?
The client provides high-liquidity securities (collateral) to the bank as collateral and receives cash funds in an equivalent currency on their account.
*If the securities are in Euros (€), the cash funds will also be in euros.
Advantages of Repo Transactions:
- You retain all rights to the securities for the duration of the contracted product term.
- Short-term financing with the possibility of extension.
Risks of Repo Transactions:
- Change in Collateral Value
- Haircut – a defined percentage of the nominal value of collateral by which the amount of received funds is reduced.