Question

A monetary policy tool that allows a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity finishes is called- 

A 1) Liquidity adjustments facility (LAF) Correct Answer Incorrect Answer
B 2) Marginal standing facility (MSF) Correct Answer Incorrect Answer
C 3) Repo Correct Answer Incorrect Answer
D 4) Market Stabilization scheme (MSS) Correct Answer Incorrect Answer
E 5) Reverse Repo Correct Answer Incorrect Answer

Solution

Liquidity adjustments facility (LAF) -Banks borrow money through repurchase agreements for adjusting the day to day mismatches in liquidity Marginal standing facility (MSF): It’s a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity finishes. Market Stabilization scheme (MSS): Securities that are issued for providing a stock of securities to the RBI to intervene in the market for managing liquidity. Repo rate: The rate at which the RBI lends money to banks in the event of any shortfall of funds with banks. Reverse Repo Rate: The rate at which the RBI borrows money from commercial banks. This is used to reduce the money supply in market

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