What is a primary purpose of repurchase agreements in the money market?

A primary purpose of repurchase agreements, or repos, in the money market is to provide short-term funding for financial institutions. In a repo, one party sells a security to another with an agreement to buy it back later at a slightly higher price. This allows the seller to get cash quickly while using the security as collateral, which makes the transaction safer for the buyer. For example, a bank might sell government bonds through a repo to obtain cash needed for daily operations, knowing it can buy back the bonds the next day. This process helps maintain liquidity in the financial system, ensuring that banks and other institutions can meet their short-term cash needs.