MATCHED SALE TRANSACTION

Mainly applies to convertible securities. Procedure whereby the Federal Reserve Bank of New York sells government securities to a non-bank dealer against payment in federal funds. The agreement requires the dealer to sell the securities back by a specified date, which ranges from one to 15 days. The Fed pays the dealer a rate of interest equal to the discount rate . These transactions, also called reverse repurchase agreements, decrease the money supply for temporary periods by reducing dealer's bank balances and thus excess reserves .