Dear Readers,
1-What is the rate at which the central bank lends money to commercial banks for a longer-term period?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Discount rate
e) Base rate
Answer: a
2-Which rate is used to measure the rate at which commercial banks earn interest on their excess reserves?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Savings account rate
e) Prime lending rate
Answer: c
3-When the central bank decreases the repo rate, what is its likely impact on borrowing costs for businesses and individuals?
a) Borrowing costs increase
b) Borrowing costs decrease
c) No impact on borrowing costs
d) It depends on other factors
e) Borrowing costs become volatile
Answer: b
4-Which rate is determined by the central bank to signal its monetary policy stance to the financial markets?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) Base rate
Answer: b
5-What is the primary objective of the central bank when it changes the bank rate?
a) Control Inflation
b) Encourage borrowing
c) Promote economic growth
d) Regulate the foreign exchange rate
e) Ensure fiscal discipline
Answer: a
6-When the central bank conducts open market operations to purchase government securities, what is the likely impact on the money market and the repo rate?
a) The money market tightens, and the repo rate decreases
b) The money market tightens, and the repo rate increases
c) The money market eases, and the repo rate decreases
d) The money market eases, and the repo rate increases
e) No impact on the money market or repo rate
Answer: c
7-Which rate is often used as a reference point for setting interest rates on various loans, including home mortgages?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) LIBOR rate
e) T-bill rate
Answer: a
8-If the central bank wants to control excess liquidity in the banking system, what is the likely action it will take with the reverse repo rate?
a) Increase the reverse repo rate
b) Decrease the reverse repo rate
c) Keep the reverse repo rate unchanged
d) Reduce the bank rate
e) Lower the CRR (Cash Reserve Ratio)
Answer: a
9-Which rate is set by individual commercial banks and is based on their cost of funds and business strategies?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) Policy rate
Answer: d
10-What is the key difference between the repo rate and the reverse repo rate?
a) The duration of the loan
b) The parties involved
c) The interest rate risk
d) The collateral
e) None of the above
Answer: a
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MAHENDRA GURU