New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    The rate of interest which the RBI charges on the loans

    and advances to a commercial bank borrowed for a long term is known as ________.
    A Bank rate Correct Answer Incorrect Answer
    B Cash reserve ratio Correct Answer Incorrect Answer
    C Statutory liquidity ratio Correct Answer Incorrect Answer
    D Repo rate Correct Answer Incorrect Answer
    E Reverse repo rate Correct Answer Incorrect Answer

    Solution

    Repo Rateis the rate at which the country’s central bank, which is RBI in India, lends money to commercial banks during financial crisis. The rate of interest charged by the central bank on the loans they have extended to commercial banks and other financial institutions is called “Bank Rate”. In this case, there is no repurchasing agreement signed, no securities sold or collateral involved. Banks borrow funds from the central bank and lends the money to their customers at a higher interest rate, thus, making profits. Bank Rate is usually higher than Repo Rate as it is an important tool to control liquidity.

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