What is Repo Market

Repo market is the part of money market in which  Govt. or treasury securities are repurchased on a future date. This future period may be one day or overnight. Senior Editor Paddy Hirsch  has explained repo market in his video lecture. He gave the example of SAM and Amy. SAM needs $ 100 and Amy gives $ 100 on the security of CDC Records System. SAM agrees to repurchase same CDC record system by paying $ 101. Next day, SAM repurchases same CDC record system by paying $101. So, this is simple example of Repo market. But a large repo market in which big commercial banks deal with central bank or with each other.

For example, The US Federal Reserve and the European Repo Council (a body of the International Capital Market Association) both try to estimate the size of their respective repo markets. At the end of 2004, the U.S. repo market reached US$5 trillion. The European repo market has experienced consistent growth over the past five years, from €1.9 billion in 2001 to €6.4 trillion by the end of 2006, and is expected to continue significant growth due to Basel II, according to a 2007 Celent report entitled “The European Repo Market link

Senior Editor Paddy Hirsch's following video tutorial will explain this more simple way:

Related : Repo and Reverse Repo