Identification

• Term repurchase agreements occur when banking institutions purchase securities from a dealer and resell them at a fixed price.
  
  

Benefits

• The profit made from selling the securities is the interest paid for the term repurchase agreement.
  
  

Function

• Banking institutions use term repurchase agreements as a short-term alternative cash investment.
  
  

Features

• Term repurchase agreements are short-term investments. Term repurchase agreements are used by banks with excess cash opposed to certificates of deposit, which have a maturity of up to five years.
  
  

Warning

• Term repurchase agreements are subject to a high interest rate risk due to the maturity length of more than one day.