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Implied Repo Rate

What does Implied Repo Rate mean?

The rate which results from a cash/futures arbitrage. Implied Repo Rate (IRR) is the rate of return that a seller of a futures contract can earn by buying the underlying asset and then delivering the underlying asset at the settlement date. This is applicable for cash-and-carry trades also.

Futures Knowledge Explains Implied Repo Rate

The IRR is calculated as the annualized rate of return for the transactions that involve the purchase of a security, sale of futures and delivery of the same in satisfaction of the maturing futures contract. For example, an investor can earn at IRR by simultaneously selling a bond futures contract and buying the underlying bond using short term borrowed money at a lower rate. Finally the investor delivers the bond at the settlement date and repays the borrowings. The IRR calculation takes into account all the cash flows associated with the security.

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