The key to understanding and remembering how spras and sras work is to identify first what the bank of canada does. In a special purchase resale agreement, the first action is a purchase. The bank of Canada purchases t-bills in exchange for money.
By handing over money, the bank of Canada is essentially lending money. How can the bank of Canada lend money and make it an attractive deal for the borrower? By charging lower rates than the current market rate. Since the borrowers are trying to maximize profits, etc., borrowers would likely turn to the bank of Canada and accept the loan. Borrowers paying lower rates force other lenders to drop rates as well. So the end result is downward pressure on interest rates.
In a sale repurchase agreement, the first action is a sale. The bank of Canada sells tbills in exchange for money. By receiving money, the bank of Canada is essentially borrowing money. How can the bank of Canada borrow money and make it an attractive deal for the lender? By offering to pay higher rates than the current market rate. Since the lenders are trying to maximize profits, etc., lenders would likely turn to the bank of Canada and lend their money.
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