Consider the following measures:
1) Repo Rate
2) Cash Reserve Requirement
3) Reverse Repo Rate
Which of the measures given above is/are major instrument(s) used in the Liquidity Adjustment Facility (LAF)?

1 and 2

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1 and 3

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2 and 3

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Only 2

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Solution

The correct option is B 1 and 3
Liquidity Adjustment Facility is a mechanism used by RBI to control liquidity and transmit interest rate signals to the market. Banks can borrow money for short term at repo rate in case of emergency or for making adjustments to comply with SLR/CRR requirements. Government securities are used as collateral in this case.

On the other hand, RBI can borrow from the banks at reverse repo rate by lending securities.

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Similar questions

Q22. Consider the following statements about Liquidity Adjustment Facility:

1. This arrangement allows banks to respond to liquidity pressures.

2. LAF includes only reverse repo agreements.

Which of the above statements are correct?

Consider the following statements about different short–term liquidity management measures taken by RBI:

Codes :

What is the current Policy Repo Rate under the liquidity adjustment facility (LAF)?

15 %

25 %

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