A repurchase agreement (often called a repo) is a short-term borrowing arrangement where one party sells securities to another with the promise to repurchase them at a later date, usually at a higher price. This transaction allows the seller to obtain immediate cash while providing the buyer with a secure investment, as the securities serve as collateral. Repos are commonly used by financial institutions, such as banks and hedge funds, to manage liquidity and finance their operations. They play a crucial role in the money market, helping to stabilize interest rates and facilitate the flow of capital within the economy.