Question : The difference between the lending rate and borrowing rate of commercial banks is known as:
Option 1: Profit
Option 2: Spread
Option 3: Interest
Option 4: None of the above
Correct Answer: Spread
Solution : The correct answer is (b) Spread
The difference between the lending rate and borrowing rate of commercial banks is commonly known as the spread. It represents the profit margin that banks earn from their lending and borrowing activities.
Commercial banks typically borrow funds from depositors or other financial institutions at a certain interest rate, known as the borrowing rate or cost of funds. They then lend out these funds to borrowers at a higher interest rate, known as the lending rate or loan rate. The difference between these two rates is the spread.The spread serves as a source of income for banks. It covers various costs and risks associated with lending, such as operational expenses, credit risk, liquidity risk, and profit margin. A wider spread indicates higher profitability for the bank, while a narrower spread may imply lower profitability.
Question : The interest rate charged by commercial banks on loans is called:
Option 1: Repo rate
Option 2: Reverse repo rate
Option 3: Prime lending rate
Question : The difference between the buying and selling price of a currency in the foreign exchange market is known as the ________.
Option 1: exchange rate spread
Option 2: bid-ask spread
Option 3: spot rate spread
Option 4: forward rate spread
Question : The bank rate is the rate at which:
Option 1: RBI borrows from commercial banks
Option 2: RBI lends to commercial banks
Option 3: Commercial banks lend to customers
Option 4: Commercial banks borrow from RBI
Question : The reverse repo rate is the rate at which Central Bank:
Option 1: Lends money to commercial banks short-term
Option 2: Lends money to commercial banks for long-term
Option 3: Accepts deposits from commercial banks
Option 4: None of these
Question : Rate of interest is determined by
Option 1: The rate of return on the capital invested
Option 2: Central Government
Option 3: Liquidity preference
Option 4: Commercial Banks
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