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Fisher, M. (2002)Special Repo Rates: An Introductionhere

Introduction (partial)

"The market for repurchase agreements involving Treasury securities (known as the repo market) plays a central role in the Federal Reserve’s implementation of monetary policy. Transactions involving repurchase agreements (known as repos and reverses) are used to manage the quantity of reserves in the banking system on a shortterm basis. By undertaking such transactions with primary dealers, the Fed, through the actions of the open market desk at the Federal Reserve Bank of New York, can temporarily increase or decrease bank reserves.

The focus of this article, however, is not monetary policy but, rather, the repo market itself, especially the role the market plays in the financing and hedging activities of primary dealers. The main goal of the article is to provide a coherent explanation of the close relation between the price premium that newly auctioned Treasury securities command and the special repo rates on those securities."


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