My understanding of reverse repro is that the feds sells you securities (like bonds) with an agreement they'll buy it back from you at a higher (agreed upon) price.
So, cash that is floating around is sold to the fed over the open market.
The part that's confusing is that the immediate effect is to combat inflation. But when the fed buys back the shares, they are essentially printing more money. Also, the people participating get guaranteed profits (otherwise they would have no reason to participate).
I'm assuming that once the parties reap the profits when the treasuries come due, they'll park their cash with the Fed again for more profits. It's just one big shell game.
My understanding of reverse repro is that the feds sells you securities (like bonds) with an agreement they'll buy it back from you at a higher (agreed upon) price. So, cash that is floating around is sold to the fed over the open market.
The part that's confusing is that the immediate effect is to combat inflation. But when the fed buys back the shares, they are essentially printing more money. Also, the people participating get guaranteed profits (otherwise they would have no reason to participate).
I'm assuming that once the parties reap the profits when the treasuries come due, they'll park their cash with the Fed again for more profits. It's just one big shell game.