Gilt-Edged Market

The spread between the BoE repo rate, the two-week and the one-month interbank

mid-rates is shown in Figure 6.6.

6.2 The basics of repo

A repo agreement is a transaction in which one party sells securities to another, and at the

same time and as part of the same transaction commits to repurchase identical securities

on a specified date at a specified price. The seller delivers securities and receives cash from

the buyer. The cash is supplied at a predetermined rate ± the repo rate ± that remains

constant during the term of the trade. On maturity the original seller receives back collateral

of equivalent type and quality, and returns the cash plus