Money 3

Very unfortunately, I never went for dinner today (06/18/08) since I’ve been engaged with important meeting. However in continue with my previous mail, I’ll tell you “What is the Repo Rate?”

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. (Note, there is no acronym for REPO. It’s just Repurchase Agreement, find below the definition)

Just to add, What is the link between the repo rate and the bank rate? The repo rate is the rate at which the RBI borrows from the banks, while the bank rate is the rate at which the banks borrow from the RBI. Naturally, then, if the RBI cuts the repo rate, it may not be long before it cuts the bank rate as well.

In finance, "repo" means repurchase agreement, and the "repo rate" is the current interest rate for secured overnight or very short term secured financing involving the sale and repurchase of securities. Its how some securities positions are financed. "reverse repo" is the same transaction from the borrowers perspective.

So, those terms make sense to financiers in the securities industry. I dont know that they make sense in the automobile industry, other than "repo" which is short for "repossession". That of course is what happens when a borrower fails to make a lease or financing payment on her car. Then the "repo man" comes to take the car back as permitted for breach of the financing agreement.

Ways to go……..