Inside the Currency Market: Mechanics, Valuation, and Strategies

U.S. Repo Market

The U.S. repo market began in 1918 when the central bank sold Bankers Acceptance Certificates to the private market only to buy them back at a later date (Treasury 2010). Bankers Acceptances are timed drafts sold at a discount in the money market and represent one of the oldest money market instruments. The Federal Reserve conducts Open Market operations through the New York Fed by its System Open Market Operations but reports through the SOMA account, termed the System Open Market Account. The Fed uses this account to manage currency in circulation, manage reserves, and provide liquidity in emergency situations. This is conducted through trade of the Fed Funds Rate.

The Monetary Control Act of 1980 allowed the Fed to exchange ...