Final answer:
A repo is a short-term borrowing arrangement where securities are sold and repurchased later, while a reverse repo is when securities are purchased with an agreement to sell them back later. They are used for different purposes.
Step-by-step explanation:
A repurchase agreement (repo) is a short-term borrowing arrangement in which one party sells securities to another with an agreement to repurchase them at a later date. This transaction is typically used by financial institutions to obtain short-term funding. On the other hand, a reverse repo is when the opposite occurs - one party purchases securities from another with an agreement to sell them back later. Reverse repos are often used by central banks to control the money supply and manage interest rates. The difference between repos and reverse repos lies in the direction of the transaction and the purpose for which they are used.