Q. Which of the following statements is/are correct?
1.The rate at which the RBI issues loans to commercial banks when there is a shortage of funds is the repo rate.
2.The reverse repo rate is the variable or fixed interest rate the RBI pays to commercial banks when they store excess cash reserves with the central bank.
3.The variable rate reverse repo is a fixed or variable interest rate at which RBI lends to banks.
Select the correct answer from below given codes:
Red Book
Red Book

[A] Only one

[B] Only two

[C] Only three

[D] None

Answer: B
Notes:

Explanation: The rate at which the RBI issues loans to commercial banks when there is a shortage of funds is the repo rate.

  • The reverse repo rate is the variable or fixed interest rate the RBI pays to commercial banks when they store excess cash reserves with the central bank.
  • The variable rate reverse repo is a fixed or variable interest rate at which banks lend to RBI.
  • The VRRR auction is undertaken to reduce surplus liquidity in the system by withdrawing existing cash.

Source: FORUMIAS

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