A repurchase agreement (repo) is a financial transaction where one party sells a security to another with an agreement to repurchase it later at a higher price. This acts as a short-term loan with the security serving as collateral or guarantee. The price difference reflects the interest on the loan. Repo's are used for short-term borrowing, often overnight, and are considered low-risk due to the collateral. They are important for managing liquidity, controlling interest rates, and maintaining market stability.