A dollar roll is a type of financial transaction that sometimes takes place in the mortgage-backed securities industry. This is a type of repurchase agreement that involves a buyer and a seller. An investor sells a mortgage-backed security to a buyer for an agreed-upon amount of money. At the same time, the investor agrees to purchase the mortgage-backed security at a specific date in the future. The future purchase price is generally less than what they originally sold the mortgage-backed security for in the first place. This allows the investor to make a return on the decrease in value of the asset.

During the transaction, the investor gets too use the money that was generated from the sale of the mortgage-backed security to invest. They can invest this money into the market and then get it back shortly before the repurchase date. They will then use the money to buy back the mortgage-backed security. 

With a traditional repurchase agreement, the buyer and seller deal with the exact same security changing hands twice. With the dollar roll, this is not the case. The buyer of the mortgage backed security will generally sell the investor back a security that is very similar to the original security.

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