The difference in the selling and purchase prices of government securities in a typical overnight repurchase agreement is set to reflect

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The difference in the selling and purchase prices of government securities in a typical overnight repurchase agreement is set to reflect the overnight cost of funds, which is the interest rate charged by financial institutions for borrowing funds overnight. This is the most common way in which repo rates (the rate of interest on overnight repurchase agreements) are determined. The difference between the purchase price and the selling price of the securities in a repo agreement is the interest earned by the lender and the cost of funds to the borrower.

The Difference in the Selling and Purchase Prices of Government