Question : The repo rate is the rate at which:
Option 1: Banks borrow from the RBI
Option 2: The RBI borrows from the banks
Option 3: Banks borrow from each other
Option 4: None of the above
Answer (1)
11th Jan, 2024
Correct Answer: Banks borrow from the RBI
Solution : The correct answer is (a) Banks borrow from the RBI.
The repo rate is the rate at which banks borrow funds from the Reserve Bank of India (RBI). When banks face a shortage of funds, they can borrow money from the RBI by pledging government securities as collateral. The repo rate determines the cost at which banks can borrow short-term funds from the central bank. It serves as a tool for the RBI to regulate liquidity in the banking system and control inflation.
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