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      Question

      Under the Explanation to Section 17(12AB) of the RBI

      Act, 1934, an instrument for borrowing funds by selling securities with an agreement to repurchase them at an agreed future price is known as what?
      A Repo Correct Answer Incorrect Answer
      B Reverse repo Correct Answer Incorrect Answer
      C Bank rate Correct Answer Incorrect Answer
      D Standing deposit Correct Answer Incorrect Answer
      E Treasury bill Correct Answer Incorrect Answer

      Solution

      The Explanation to Section 17(12AB) defines 'repo' as an instrument for borrowing funds by selling securities of the Central Government, a State Government or specified local authority securities or foreign securities, with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. By contrast, 'reverse repo' is an instrument for lending funds by purchasing such securities. Borrowing funds by selling securities is therefore a repo.

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