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
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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