Over the past few weeks, I’ve come across a couple of financial buzzwords that I will like to share with you. I believe these words are popping up more recently due to a potential economic collapse as a result of the Corona Virus.
I will share the three words with you below:
The first one is a “Repo” which is short for Repurchase Agreement.
A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price.
To further simplify it, a repo would be a transaction between banks, fund managers and other big financial institutions. It’s a way to raise short-term capital.
Central banks also use it as a monetary policy tool. They can use a Repo to inject money into the system(economy) and also take money out of the system.
Visit here to learn more about how Repo works.
The second buzzword is “Swap Lines.”
Swap lines are agreements between central banks to exchange their country’s currencies to one another. They keep a supply of currency available to trade with the other central bank at the going exchange rate. Banks use swap lines for overnight and short-term lending only.
This type of agreement is usually bilateral(between two central banks) and it’s for a short period of time.
For instance, the Central Bank of Nigeria(CBN) can provide naira to the Peoples Bank of China(PBC), and in return, the PBC provides Yuan to the CBN at the current exchange rate. They would agree to exchange bank the exact amount of currency the next day or within a short period of time.
The third word which I’ve shared on this platform before is called a “cocoon”.
A cocoon is a covering of silky threads that the larvae of moths and other insects make for themselves before they grow into adults. If you are in a cocoon of something, you are wrapped up in it or surrounded by it.
Right now we’re surrounded by the cocoon of Corona Virus and potential economic collapse. What’s important is whether you come out stronger or weaker.
We’re definitely not going back to normal. So how are you enjoying the new normal(remote work, staying safe, devaluing currency, etc)?
Those are my three financial words(repo, swap lines, and cocoon). I hope you’ve learned something new.
Kindly share some finance buzzwords you learned recently in the comment section below. I look forward to seeing them.