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Q37 (CDS-I/2020) Economy › Money, Banking & Inflation › Monetary policy tools Answer Verified

Which one of the following is not correct about Repo rate?

Result
Your answer: —  Â·  Correct: D
Explanation

The Repo rate is the interest rate at which the Central Bank (RBI) provides overnight liquidity to commercial banks against the collateral of government and other approved securities [1]. It is essentially the interest rate charged by the Central Bank on overnight loans [1] and, conversely, the interest rate paid by commercial banks for such borrowing. The mechanism involves a repurchase agreement where banks sell securities to the RBI with a commitment to buy them back at a pre-determined price; the difference between the sale and repurchase price represents the interest cost [1]. While the Repo rate is the interest rate agreed upon in this repurchase contract, it is not the 'cost of collateral security' itself. The collateral (government securities) serves as a guarantee for the loan, whereas the Repo rate is the cost of the funds borrowed [1].

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 61
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SIMILAR QUESTIONS

CAPF · 2013 · Q94 Relevance score: 2.70

Consider the following statements : 1. Repo rate is the interest rate at which RBI lends to commercial banks for short period. 2. Reverse repo rate is the (interest rate which RBI pays to commercial banks on short- term deposits, 3. Gap between repo rate and reverse repo rate has been declining in India in the recent past. Which of the statements given above is/are not correct?

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Consider the following statements: 1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India. 2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population. Which of the statements given above is/are correct?

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Which one of the following statements about a borrower from a Microfinance Company is not correct?

CDS-I · 2024 · Q42 Relevance score: -1.35

Consider the following statements regarding instruments of monetary policy : 1. Standing deposit facility (SDF) rate was introduced in April 2022. 2. SDF rate replaced fixed reverse repo rate as the floor of the LAF corridor. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2