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Consider the following statements:
1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.
2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.
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 'B'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements:1. Liquidity Management Initiative i...
Statement 1: Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.
Statement 2: Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.
To determine the correctness of the statements, let's analyze each statement individually.
Statement 1: Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.
The statement is incorrect. The correct term is "Liquidity Adjustment Facility (LAF)" and not "Liquidity Management Initiative." The LAF is a monetary policy tool used by the Reserve Bank of India (RBI) to manage liquidity in the banking system. It consists of two components: repo (repurchase agreement) and reverse repo operations. In a repo transaction, banks borrow funds from the RBI by lending their government securities as collateral. This helps banks manage their short-term liquidity needs. Therefore, statement 1 is incorrect.
Statement 2: Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.
The statement is correct. Marginal Standing Facility (MSF) and Forex Swaps are two instruments used by the RBI for liquidity management.
1. Marginal Standing Facility (MSF): It is a facility provided by the RBI to banks for overnight borrowing. Under the MSF, banks can borrow funds from the RBI against eligible securities at a rate higher than the repo rate. This facility helps banks meet their short-term liquidity requirements when they are unable to borrow from other sources.
2. Forex Swaps: Forex swaps are another instrument used by the RBI for liquidity management. In a forex swap, the RBI buys/sells foreign currency from/to banks to inject/absorb liquidity from the banking system. It involves simultaneous spot and forward transactions, where the RBI buys/sells foreign currency spot and sells/buys it back at a future date.
Therefore, statement 2 is correct.
Conclusion:
Based on the analysis of the individual statements, we can conclude that statement 1 is incorrect, but statement 2 is correct. Hence, the correct answer is option 'B' - 2 only.
Statement 2: Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.
To determine the correctness of the statements, let's analyze each statement individually.
Statement 1: Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.
The statement is incorrect. The correct term is "Liquidity Adjustment Facility (LAF)" and not "Liquidity Management Initiative." The LAF is a monetary policy tool used by the Reserve Bank of India (RBI) to manage liquidity in the banking system. It consists of two components: repo (repurchase agreement) and reverse repo operations. In a repo transaction, banks borrow funds from the RBI by lending their government securities as collateral. This helps banks manage their short-term liquidity needs. Therefore, statement 1 is incorrect.
Statement 2: Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.
The statement is correct. Marginal Standing Facility (MSF) and Forex Swaps are two instruments used by the RBI for liquidity management.
1. Marginal Standing Facility (MSF): It is a facility provided by the RBI to banks for overnight borrowing. Under the MSF, banks can borrow funds from the RBI against eligible securities at a rate higher than the repo rate. This facility helps banks meet their short-term liquidity requirements when they are unable to borrow from other sources.
2. Forex Swaps: Forex swaps are another instrument used by the RBI for liquidity management. In a forex swap, the RBI buys/sells foreign currency from/to banks to inject/absorb liquidity from the banking system. It involves simultaneous spot and forward transactions, where the RBI buys/sells foreign currency spot and sells/buys it back at a future date.
Therefore, statement 2 is correct.
Conclusion:
Based on the analysis of the individual statements, we can conclude that statement 1 is incorrect, but statement 2 is correct. Hence, the correct answer is option 'B' - 2 only.
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Consider the following statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. Can you explain this answer?
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Consider the following statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. 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 statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. 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 statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. Can you explain this answer?.
Consider the following statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. 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 statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. 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 statements:1. Liquidity Management Initiative is a tool used in monetary policy by the RBI, that allows banks to make loans to the RBI through repurchase agreements.2. Marginal Standing Facility (MSF) and Forex Swaps are the instruments under Liquidity Management.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 'B'. Can you explain this answer?.
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