Definition of Repurchase Obligations and International Equity Financing

Repurchase Obligations

(REPOS)

In the US money market, Repurchase Obligations (REPOS) are used by securities dealers to finance their holdings of securities. This is a form of collateralized short-term borrowing in which the borrower ‘sells’ securities to the lender with an agreement to ‘buy’ them back at a later time. (Hence the name ‘Repurchase Obligations’). The repurchase price is the same as the original buying price, but the seller (borrower) pays interest in addition to buying back the securities. The duration for the borrowing may be as short as overnight or as long as up to a year. The former are called ‘overnight repos’. Longer duration repos are ‘term repos’. The interest rate is determined by demand-supply conditions. This concludes our brief survey of major short-term funding instruments.

International Equity Financing

(GDRs, ADRs, IDRs)

Equity investment by foreign investors into a country can occur in one or more of three ways. Foreign investors can directly purchase shares in the stock market of the country e.g. investment by FIIs in the Indian stock market. Or, companies from that country can issue shares (or depository receipts) in the stock markets of other countries. Finally, indirect purchases can be made through a mutual fund which may be a specific country fund or a multi-country regional fund.