Repurchase agreements, or repos, are a tool of monetary operations used by the Fed in carrying out monetary policy. In a repo, the Fed will buy securities (Treasuries, agency securities, mortgage-backed, etc.) from authorized counterparties (i.e., primary dealers) at an agreed-upon price for an agreed-upon term.
Once the term expires–and it could be anywhere from overnight to 65 days–the dealers buys back the securities with interest. You can think of a repo as a short-term loan. The Fed often uses repos to temporarily adjust the level of reserves in the banking system.
