Dear Readers,
1-What is the rate at which commercial banks can borrow money from the central bank against government securities?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) Discount rate
Answer: b
2-Which rate is used by the central bank to control the money supply and influence inflation in the economy?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Policy rate
e) Base rate
Answer: a
3-When the central bank engages in open market operations to sell government securities, what impact does it have on the repo rate?
a) Repo rate increases
b) Repo rate decreases
c) Repo rate remains unchanged
d) Reverse repo rate increases
e) Reverse repo rate decreases
Answer: a
4-Which rate represents the interest rate at which the central bank borrows money from commercial banks, absorbing excess liquidity from the market?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Policy rate
e) T-bill rate
Answer: c
5-If the central bank raises the bank rate, what is the likely effect on investment and economic activity?
a) Investment and economic activity increase
b) Investment and economic activity decrease
c) No impact on investment or economic activity
d) Investment increases, but economic activity decreases
e) Economic activity increases, but investment decreases
Answer: b
6-Which rate is more directly linked to the interest rates offered to savers on fixed deposits and other savings instruments?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) Prime lending rate
e) Savings account interest rate
Answer: e
7-In a scenario where the central bank wants to encourage liquidity in the market, what action might it take regarding the reverse repo rate?
a) Increase the reverse repo rate
b) Decrease the reverse repo rate
c) Keep the reverse repo rate unchanged
d) Increase the bank rate
e) Conduct open market purchases
Answer: b
8-Which rate is more likely to influence the interest rates on adjustable-rate mortgages and other variable-rate loans?
a) Bank rate
b) Repo rate
c) Reverse repo rate
d) LIBOR rate
e) Prime lending rate
Answer: d
9-When the central bank uses the bank rate as a tool to control inflation, what is the expected impact on consumer spending?
a) Consumer spending increases
b) Consumer spending decreases
c) No impact on consumer spending
d) Consumer spending becomes volatile
e) It depends on other factors
Answer: b
10-What is the primary purpose of the bank rate in the central bank's monetary policy framework?
a) To regulate the foreign exchange market
b) To control inflation
c) To manage short-term liquidity needs of banks
d) To set benchmark interest rates for commercial banks
e) To promote long-term economic growth
Answer: d
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MAHENDRA GURU