Question : Assertion: Repo rate is the rate at which the central bank lends money to commercial banks.
Reason: Reverse repo rate is the rate at which banks borrow money from the central bank.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Assertion is false, but the reason is true.
Correct Answer:
Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Solution : The correct answer is (a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
The assertion is true. The repo rate is the rate at which the central bank lends money to commercial banks in the case of a repurchase agreement (repo), where the central bank purchases securities from commercial banks with an agreement to sell them back at a future date.
The reason is true and provides the correct explanation for the assertion. The reverse repo rate is the rate at which commercial banks lend money to the central bank in the same repurchase agreement, where the banks purchase securities from the central bank with an agreement to sell them back at a future date. So, the repo rate is the rate at which the central bank lends to commercial banks, and the reverse repo rate is the rate at which commercial banks borrow from the central bank.
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