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Dollar Roll Financial Glossary

What is it? A short-term funding technique used for mortgage pass-through securities. A seller of a roll agrees to sell a mortgage security at an agreed-upon price on a specified date and to buy back a similar security at a specified future date. The seller receives the use of the funds for the specified time period but does not receive the monthly cash flows from the mortgage security during the roll period. The buyer or counterparty agrees to buy the mortgage security at an agreed-upon price and to sell back a similar security at a specified future date. The buyer is the owner of the security for that time period and as the owner is entitled to all of the cash flows during that period. Unlike a repo/reverse repo transaction, at the end of the transaction time period, the buyer is only required to resell a substantially similar security to the seller.

Finance Term Definition Added By: Cole

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