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Consider the following statements
1. Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.
1. Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Consider the following statements1.Repo is an instrument for borrowing...
Repurchase Options or in short Repo, is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments. This is an instrument used by the Central Bank and banking institutions to manage their daily / short term liquidity.
Legal Definition
A legal definition of ‘repo’ and ‘reverse repo’ was inserted as sub-sections (c) and (d) of section 45 U of Chapter III D of the Reserve Bank of India (RBI) Act, 1934, vide The Reserve Bank of India (Amendment) Act, 2006 (w.e.f. 9.1.2007). Thus,
“repo” means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;
“reverse repo” means an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.”
In News: SBI to offer home loan linked to repo rate
Legal Definition
A legal definition of ‘repo’ and ‘reverse repo’ was inserted as sub-sections (c) and (d) of section 45 U of Chapter III D of the Reserve Bank of India (RBI) Act, 1934, vide The Reserve Bank of India (Amendment) Act, 2006 (w.e.f. 9.1.2007). Thus,
“repo” means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;
“reverse repo” means an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.”
In News: SBI to offer home loan linked to repo rate
Most Upvoted Answer
Consider the following statements1.Repo is an instrument for borrowing...
Understanding Repo and Reverse Repo
Repo and reverse repo transactions are essential components of monetary policy and liquidity management in financial markets.
1. What is a Repo?
- A repo, or repurchase agreement, is a financial transaction where:
- An entity sells securities to another party.
- The seller agrees to repurchase those securities at a future date.
- The repurchase price is higher and includes interest for the funds borrowed.
- This mechanism allows institutions to obtain short-term funding while providing collateral in the form of securities.
2. What is a Reverse Repo?
- A reverse repo is essentially the opposite of a repo, characterized by:
- An entity purchasing securities with the understanding that it will sell them back later.
- The resale price includes interest, effectively lending funds to the seller of the securities.
- This tool is used by central banks to manage liquidity in the banking system, allowing them to absorb excess funds.
Conclusion: Correctness of Statements
- Statement 1 is accurate because it correctly describes how a repo functions.
- Statement 2 is also accurate as it rightly explains the reverse repo process.
Therefore, both statements are correct, making the answer option C: Both 1 and 2.
Understanding these terms is crucial for grasping how financial markets operate and how monetary policy is implemented.
Repo and reverse repo transactions are essential components of monetary policy and liquidity management in financial markets.
1. What is a Repo?
- A repo, or repurchase agreement, is a financial transaction where:
- An entity sells securities to another party.
- The seller agrees to repurchase those securities at a future date.
- The repurchase price is higher and includes interest for the funds borrowed.
- This mechanism allows institutions to obtain short-term funding while providing collateral in the form of securities.
2. What is a Reverse Repo?
- A reverse repo is essentially the opposite of a repo, characterized by:
- An entity purchasing securities with the understanding that it will sell them back later.
- The resale price includes interest, effectively lending funds to the seller of the securities.
- This tool is used by central banks to manage liquidity in the banking system, allowing them to absorb excess funds.
Conclusion: Correctness of Statements
- Statement 1 is accurate because it correctly describes how a repo functions.
- Statement 2 is also accurate as it rightly explains the reverse repo process.
Therefore, both statements are correct, making the answer option C: Both 1 and 2.
Understanding these terms is crucial for grasping how financial markets operate and how monetary policy is implemented.
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Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
Question Description
Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?.
Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?.
Solutions for Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
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ample number of questions to practice Consider the following statements1.Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.2. Reverse repo is an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer? tests, examples and also practice UPSC tests.
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