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Quantitative Finance · Glossary

What is Reverse repo facility?

Definition 2.9 Markets II: Rates, FX and Credit · Chapter 2 — Money Markets

A central bank’s reverse repo facility lets eligible counterparties lend it cash overnight against securities at a rate it administers; the rate puts a floor under what those counterparties will accept from anyone else.

Where a money-market fund’s cash goes each day. A government fund chooses among bills, repo with dealers and the central bank’s reverse repo facility, at their rates of the day; a prime fund can also buy paper and bank CDs. At quarter-ends and at the year-end the arrow to the dealers shrinks and the one to the Federal Reserve grows ().
Figure 2.2. Where a money-market fund’s cash goes each day. A government fund chooses among bills, repo with dealers and the central bank’s reverse repo facility, at their rates of the day; a prime fund can also buy paper and bank CDs. At quarter-ends and at the year-end the arrow to the dealers shrinks and the one to the Federal Reserve grows (Figure 2.3).
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