What Is a Matched Sale-Purc🔯hase Agreement (MSPA)?

In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury 𒆙bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short pౠeriod of time, usually less than two weeks. The security is bought back at the same price at which it was sold and decreases banking reserves during the term of the matched sale-purchase agreement.

This calculated agreement is also known as a "system MSP."

Understanding Matched Sale-Purchase 🔜Agreements (MSPAs)

Ultimately, matched sale-purchase agreements are a rarely-used method of temp💝orarily decreasing reserves and securities holdings, done when country governments have limited options. The purpose of a matched sale-purchase agreement is to slightly prohibit market liquidity for the term of the matched sale-purchase agreement.

Since matched sale-purchase agreements occur over short periods of time, they are employed as short-term options for stabilizing a market. ꦡThis financial arrangement is different than the standard open🐷-market operations (such as selling Treasuries to investors), in that actions by the Federal Reserve make permanent changes to banking reserves and securities levels.

Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy. For example, the 澳洲幸运5官方开奖结果体彩网:Bank of Canada employs a type of sale and repurchase agreement to implement a monetary policy called a 澳洲幸运5官方开奖结果体彩网:Purchase and Resale Agreementꩵ (PRA). Typically, Purchase and Resale Agreements are undertaken to affect liquidity and interest ratꦉes in the money market.

Match꧑ed Sale-Pur🍒chase Agreements vs. Open Market Operations

As mentioned, 澳洲幸运5官方开奖结果体彩网:open market operations (OMO) refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases of securities inject money into the banking system and stimulate growth, while sales of securities do the opposite and contract the economy. 澳洲幸运5官方开奖结果体彩网:The Federal Reserve facilitates this process and uses this technique to adjust and manipulate the 澳洲幸运5官方开奖结果体彩网:federal funds rate, which is the rate at which banks bor🍸row reserves from one another.