Under a pension contract, the Federal Reserve (Fed) buys U.S. Treasury bonds, U.S. agency securities or mortgage-backed securities from a primary trader who agrees to buy them back within one to seven days; an inverted deposit is the opposite. This is how the Fed describes these transactions from the perspective of the counterparty and not from its own point of view. The self-liquidity agreement is an alternative method of providing liquidity to a portfolio. This is a method to prevent a portfolio from being liquidated to meet unforeseen cash needs. It is also used as an effective cash management practice. When the desk conducts open market transactions, it sells securities held in the Open Market Account (SOMA) to eligible RRP counterparties with an asset repurchase agreement on the specified RRP due date. As a result, the soma portfolio remains of the same size, as securities sold temporarily in pension transactions continue to be accounted for as SOMA assets in accordance with generally accepted accounting standards, but the transaction defers some of the federal reserve`s debt on deposits (also known as bank reserves) to the withdrawal of deposits while the transactions are outstanding.
These RRP operations may apply overnight or for a specified period of time. The reverse repot is a guarantee for the lender of funds that finance themselves with a short-term investment amount, and thus creates a security borrowing door to obtain certain short positions covered. It is generally intended to control the supply of money to the economy as a whole. They are also considered safer, as they are primarily self-inted. In mid-September 2019, two events coincided to increase the demand for liquidity: quarterly corporate taxes were due and this was the date of settlement of previously auctioned Treasury bills. The result is a significant transfer of reserves from the financial market to the state, which has led to a disparity between demand and supply of reserves. But these two expected developments do not fully explain the volatility of the pension market. A pension transaction is when buyers buy securities from the seller for cash and agree to cancel the transaction on a given date. It works as a short-term secured loan. In India, the Reserve Bank of India (RBI) uses repo and Reverse Repo to increase or reduce the money supply in the economy.