Consider the following statements:
1) Liquidity Adjustment Facility operations help the RBI effectively transmit Interest rate signals to the market.
2) Under the repo or repurchase option, banks borrow money from the RBI via the sale of securities with an agreement to purchase the securities back at a fixed rate at a future date.
Which of the statement(s) given above is/are correct?

Only 1

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Only 2

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Both 1 and 2

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Neither 1 nor 2

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Solution

The correct option is C Both 1 and 2
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.

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Similar questions

Q. Select the correct statement/s about REPO rates:

1) Rate at which RBI lends commercial banks for securities

2) Banks ensure repurchase of securities

Q. An agreement, which in fact is a contract, between the RBI and Banks for the sale and repurchase of Govt securities and short-term treasury bills at a future date and for which the RBI indicates "the interest rate", is generally known as the _______________________.

Q. Q. Consider the following statements with respect to Repo Rate:Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

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?

50. Identify the correct statements.

1. Marginal Standing Facility (MSF) Rate: It is rate at which the scheduled banks can borrow funds overnight from RBI against government securities

2. Statutory Liquidity Ratio (SLR): It is amount that banks have to maintain a stipulated proportion of their net demand and time liabilities (NDTL) in the form of liquid assets like cash, gold and unencumbered securities, treasury bills, dated securities etc.

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The correct option is C Both 1 and 2Liquidity 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.

The correct option is C Both 1 and 2
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.