CA Foundation Exam > CA Foundation Questions > What is Bank rate?a)The rate of interest at w...
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What is Bank rate?
- a)The rate of interest at which commercial banks give loan to their customers
- b)The rate of interest at which Banks invite long term deposits of the public
- c)The rate at which the Central Bank of a country discounts the bills of commercial banks
- d)The rate at which Central Bank of a country sells its securities to the public.
Correct answer is option 'C'. Can you explain this answer?
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What is Bank rate?a)The rate of interest at which commercial banks giv...
Understanding Bank Rate
The bank rate is a critical monetary policy instrument used by central banks to regulate the economy. It plays a vital role in influencing the overall interest rates in the economy.
Definition of Bank Rate
- The bank rate is the rate at which the central bank of a country, like the Reserve Bank of India or the Federal Reserve in the U.S., discounts or lends money to commercial banks.
- It serves as a benchmark for the interest rates that banks charge their customers when they borrow funds.
Importance of the Bank Rate
- Liquidity Management: By adjusting the bank rate, central banks can control the money supply and liquidity in the market.
- Inflation Control: A higher bank rate can help cool down inflation by making borrowing more expensive, while a lower rate encourages borrowing and spending, thus stimulating the economy.
- Signal to Banks: Changes in the bank rate signal to commercial banks the cost of borrowing from the central bank, which in turn influences the rates they set for loans and deposits.
Comparison with Other Rates
- Loan Rates: The rate at which commercial banks lend to customers is influenced by the bank rate but is not the same.
- Deposit Rates: Rates for long-term deposits offered by banks are also influenced but are not directly linked to the bank rate.
- Securities Sale Rate: The rate at which a central bank sells securities to the public differs from the bank rate, as it concerns the open market operations.
In summary, option 'C' is correct as it accurately describes the bank rate as the rate at which the central bank discounts the bills of commercial banks, impacting the broader financial landscape.
The bank rate is a critical monetary policy instrument used by central banks to regulate the economy. It plays a vital role in influencing the overall interest rates in the economy.
Definition of Bank Rate
- The bank rate is the rate at which the central bank of a country, like the Reserve Bank of India or the Federal Reserve in the U.S., discounts or lends money to commercial banks.
- It serves as a benchmark for the interest rates that banks charge their customers when they borrow funds.
Importance of the Bank Rate
- Liquidity Management: By adjusting the bank rate, central banks can control the money supply and liquidity in the market.
- Inflation Control: A higher bank rate can help cool down inflation by making borrowing more expensive, while a lower rate encourages borrowing and spending, thus stimulating the economy.
- Signal to Banks: Changes in the bank rate signal to commercial banks the cost of borrowing from the central bank, which in turn influences the rates they set for loans and deposits.
Comparison with Other Rates
- Loan Rates: The rate at which commercial banks lend to customers is influenced by the bank rate but is not the same.
- Deposit Rates: Rates for long-term deposits offered by banks are also influenced but are not directly linked to the bank rate.
- Securities Sale Rate: The rate at which a central bank sells securities to the public differs from the bank rate, as it concerns the open market operations.
In summary, option 'C' is correct as it accurately describes the bank rate as the rate at which the central bank discounts the bills of commercial banks, impacting the broader financial landscape.
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What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer?
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What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer?.
What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is Bank rate?a)The rate of interest at which commercial banks give loan to their customersb)The rate of interest at which Banks invite long term deposits of the publicc)The rate at which the Central Bank of a country discounts the bills of commercial banksd)The rate at which Central Bank of a country sells its securities to the public.Correct answer is option 'C'. Can you explain this answer?.
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