A repurchase agreement (often called a repo) is a financial transaction where one party sells an asset, usually a government security, to another party with the agreement to repurchase it later at a higher price. This arrangement allows the seller to obtain short-term funding while the buyer earns interest on the transaction. Repos are commonly used by financial institutions, such as banks and hedge funds, to manage liquidity and finance their operations. They are considered low-risk investments because they are typically backed by high-quality collateral, like U.S. Treasury bonds, ensuring that the buyer has a secure asset in case of default.