let's assume Bank a needs cash quickly and owns a bunch of assets bonds in our case Bank B on the other hand has excess cash and wants to put it to good use in such cases Bank a can engage in a so called repurchase or repo agreement which works like this one Bank a which is called the dealer gives the bonds it owns the bank B and the grease to buy them back at a later date usually very quickly for example the next day to Bank B gives Bank a the cash it needs three when the time comes back a buys the bonds back from Bank B at a higher price in other words Bank a received the cash it needed and Bank B made some money from the perspective of Bank a this was a repo from the perspective of Bank B which is on the other side of the trade it was a reverse repo or buying securities from Bank a II with the intention of selling them back to it at a profit later on from banks mutual funds and hedge funds through even central bank's repo transactions are an options for quite a few entities in many cases a third party repo takes place where a middleman facilitating the transaction between the buyer and seller finally you might have noticed that this kind of sounds like a loan with bonds as collateral the difference however is that when it comes to repo agreements that collateral actually quote-unquote changes hands each time even if temporary a change of ownership does take place