Dear Readers,
1-Which of the following rates is determined by the central bank and is typically used as a benchmark for other interest rates in the economy?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) T-bill rate
Answer: d
2-When the central bank reduces the repo rate, what is the likely impact on economic activity and borrowing by businesses and individuals?
a) Economic activity increases, and borrowing decreases
b) Economic activity increases, and borrowing increases
c) Economic activity decreases, and borrowing decreases
d) Economic activity decreases, and borrowing increases
e) No impact on economic activity or borrowing
Answer: b
3-The repo rate is primarily used for:
a) Controlling inflation
b) Managing liquidity in the banking system
c) Promoting economic growth
d) Setting interest rates for savings accounts
e) Regulating the foreign exchange rate
Answer: b
4-Which rate is often referred to as the "policy rate" because it represents the central bank's official stance on monetary policy?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) LIBOR rate
e) Discount rate
Answer: b
5-If the central bank decreases the reverse repo rate, what is the likely effect on the incentive for banks to park excess funds with the central bank?
a) Banks are more incentivized to park excess funds
b) Banks are less incentivized to park excess funds
c) No impact on the incentive for banks
d) Banks are required to park more funds
e) Banks are required to lend more funds
Answer: a
6-Which rate is typically the highest among the three (bank rate, repo rate, reverse repo rate)?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) They are usually the same
e) It varies based on economic conditions
Answer: a
7-When the central bank increases the bank rate, what is the likely impact on the cost of borrowing for businesses and consumers?
a) Cost of borrowing decreases
b) Cost of borrowing increases
c) No impact on the cost of borrowing
d) Cost of borrowing becomes volatile
e) It depends on other factors
Answer: b
8-What is the primary purpose of the reverse repo rate?
a) To provide a source of short-term funding for banks
b) To control inflation
c) To encourage banks to lend more
d) To regulate the foreign exchange market
e) To manage excess liquidity in the banking system
Answer: e
9-Which rate is the interest rate at which commercial banks can borrow money from the central bank to meet their short-term liquidity needs?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) Base rate
Answer: b
10-If the central bank wants to stimulate economic growth and encourage borrowing, which rate would it be more likely to lower?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Discount rate
e) Prime lending rate
Answer: b
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MAHENDRA GURU