What is the meaning of reverse repo rate?
- A.Rate at which RBI borrows money from foreign banks
- B.Rate at which RBI borrows money from commercial banks
- C.Rate at which commercial banks borrows money from RBI
- D.Rate at which commercial banks borrows money from foreign banks
Correct answer
Explanation
The correct answer is B, Rate at which RBI borrows money from commercial banks. The reverse repo rate is what the Reserve Bank pays banks when it takes their surplus cash for a short period. It is the mirror image of the repo rate, at which banks borrow from the RBI against government securities. When the RBI wants to pull extra money out of the system, it makes parking funds with the central bank more attractive; when it wants credit to flow, it does the opposite. The reverse repo rate is always kept below the repo rate, and both are decided by the six member Monetary Policy Committee headed by the RBI Governor. Since 2022 most of this absorption of cash is done through the Standing Deposit Facility. Option A is wrong because the RBI does not borrow from foreign banks through this window. Option C is wrong because the rate at which commercial banks borrow from the RBI is the repo rate. Option D is wrong because lending between commercial banks and foreign banks is not set by the RBI. Exam tip: repo means the RBI lends, reverse repo means the RBI borrows.
Practice Questions
View allAccording to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
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Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Read the full explanation →Consider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. 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
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The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
Read the full explanation →UBI, as an alternative for subsidies in poverty alleviation, stands for
- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
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UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
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The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
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GST is levied by the Union and the States together on the same supply, and Article 246, which splits taxing powers between them through separate lists, did not allow such a concurrent tax.
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