Repurchase agreement with a maturity of more than one day. Also known as a term repo. Banks and savings institutions that have excess cash to invest often buy government securities instead of certificates of deposit, which have a minimum maturity of seven days. In a repurchase agreement, the bank buys securities from a dealer, or from a nondealer bank, with an agreement to sell back the securities later at a predetermined price. The difference between the purchase price and the resale price represents the payment of interest. Term repos may pay higher yields than overnight repos, because the seller assumes interest rate risk for a longer period than an overnight repo.
