Question

To contain the volatility in the overnight inter-banks rate, Marginal Standing Facility (MSF) was introduced by RBI in the year? 

A 2004 Correct Answer Incorrect Answer
B 2008 Correct Answer Incorrect Answer
C 2011 Correct Answer Incorrect Answer
D 2014 Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility (LAF). The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL).

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