Question : Statement 1: Repo rate is the rate at which the central bank lends money to ommercial banks.
Statement 2: Reverse repo rate is the rate at which banks borrow money from each other.
Option 1: Statement 1 is true, and statement 2 is true.
Option 2: Statement 1 is true, but statement 2 is false.
Option 3: Statement 1 is false, and statement 2 is true.
Option 4: Statement 1 is false, and statement 2 is false.
Correct Answer:
Statement 1 is true, and statement 2 is true.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is true.
Statement 1 is true. The repo rate is the rate at which the central bank (like the Reserve Bank of India) lends money to commercial banks in the event of any shortfall of funds.
Statement 2 is also true. The reverse repo rate is the rate at which banks can park their excess funds or lend money to the central bank, effectively borrowing from each other through the central bank as an intermediary.
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