Inside the Currency Market: Mechanics, Valuation, and Strategies

Bilateral Repo Trade

$100 Repo at 1 Percent Repo Rate and 2 Percent Haircut for 30 Days

The borrower sells $102 of securities to the cash lender and receives $100 in cash.

After 30 days, the borrower pays $100 plus 0.083 in interest to the cash lender to repurchase securities. This deal is arranged through a clearer. Step one is negotiation while step two informs the clearer of the trade so accounts can be credited and debited and transfers of cash and securities can occur. To factor,

$100 + (100 × 1 percent × (30/360))

this accounts for the Tri-party aspect.

At 8:30 the next morning, repo trades are unwound by the clearer bank to provide intraday credit to the borrower. The lender's account has $100 cash, the cash borrower has $102 in securities, ...