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Question :  ___________ is the interest rate at which banks can borrow overnight funds from the Reserve Bank of India (RBI).

 

Option 1: Bank rate

Option 2: Repo rate

Option 3: Reverse repo rate

Option 4: Prime rate


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Team Careers360 23rd Jan, 2024
Answer (1)
Team Careers360 25th Jan, 2024

Correct Answer: Repo rate


Solution : The repo rate is the interest rate at which the RBI lends money to commercial banks against the collateral of government securities. This means that banks can borrow money from the RBI by selling their government securities to the RBI, and then repurchase the securities at a later date. The repo rate is used by the RBI to control liquidity in the banking system. When the RBI wants to increase liquidity in the banking system, it lowers the repo rate, which makes it cheaper for banks to borrow money from the RBI. When the RBI wants to decrease liquidity in the banking system, it raises the repo rate, which makes it more expensive for banks to borrow money from the RBI.

Therefore, the interest rate at which banks can borrow overnight funds from the Reserve Bank of India (RBI) is the repo rate.

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