CA Foundation P4 · Chapter 8 · Question 12 of 15
The repo rate is the rate at which:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The RBI lends short-term funds to banks against eligible government securities
Explanation
Under a repurchase agreement (repo), banks sell securities to the RBI with an agreement to buy them back, effectively borrowing from the RBI. The rate charged is the repo rate, the main policy rate. Absorption of liquidity is done through reverse repo or the standing deposit facility.
More Money Market MCQs
- Q14In the Baumol-Tobin inventory approach to transactions demand for money, an increase in the interest rate will:
- Q15Milton Friedman's restatement of the quantity theory treats the demand for money as:
- Q1The most fundamental function of money, which removes the need for a double coincidence of wants, is its function as a:
- Q2Money that is accepted as legal tender by government decree but is not backed by any commodity is called:
- Q3According to Keynes, the three motives for holding money are: