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
Correct Answer: Accepts deposits from commercial banks
Solution : The correct answer is
The answer is (c). Accepts deposits from commercial banks
The reverse repo rate is the rate at which the central bank of a country (such as the Reserve Bank of India in India) accepts deposits from commercial banks. This is typically done on a short-term basis, such as overnight or for a few days.
The reverse repo rate is the opposite of the repo rate, which is the rate at which the central bank lends money to commercial banks. The repo rate is typically higher than the reverse repo rate. This is because the central bank is taking on more risk when it accepts deposits from commercial banks than when it lends money to them.
The reverse repo rate is used by the central bank to manage the money supply in the economy. When the central bank raises the reverse repo rate, it makes it more attractive for commercial banks to deposit their excess funds with the central bank. This reduces the amount of money in circulation, which can help to control inflation.
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