No, it doesn't have to do with some burly guy going after your car when you fall behind on your payments. Instead, it has to do with arbitrage in the bond market.
Take the following transaction: you borrow money to buy a bond in the current cash market, while simultaneously selling a futures contract for that same bond. Eventually, you deliver the bond to the buyer of the futures contract, paying back the loan you used to purchase the bond.
The implied repo rate is the rate of return that can be earned by going through this rigmarole. You earn money by selling the futures contract and eventually selling the bond when the futures deal expires. From that total, you also have to pay out some expenses, such as the interest cost to borrow the money needed to purchase the bond in the first place.
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![Finance: What is a Money Market Fund?](https://media1.shmoop.com/video/thumbnails/COURSE.FINANCE.107_770x433.jpg)
Finance: What is a Money Market Fund?80 Views
finance a la shmoop. what is a money market fund? isn't it a strange concept
to think about going to a market to buy money? [man walks through grocery store]
well yeah it's strange but the practice exists and it's a huge multi trillion
dollar market today. the key word here is money and not investment. why such a big
diff? well because the notion of investing implies duration. that is when
you invest in a nice fixer-upper home or a tractor distribution company or shares
in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]
like years maybe decades maybe centuries if you can find the right miracle pill.
but here we're talking about money like the stuff you can buy candy with. so it's
short term not long and a money market fund basically comprises many series of
pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]
longer than that sometimes shorter but generally in the very near future. so why
would you care about a money market fund? well because it pays you slightly more
interest on your money than say a bank checking account. and lots of people in
corporations need cash just sitting around to pay their bills, so there are
tons of money market funds out there available and that's the gist of a money
market fund. we're sure you'll have plenty of experience with them by the
time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]