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With reference to the Liquidity Adjustment Facility (LAF), consider the following statements:
1. Repo Rate is the interest rate at which the RBI provides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.
2. Reverse Repo Rate is the interest rate at which the RBI absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF. 
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?
Most Upvoted Answer
With reference to the Liquidity Adjustment Facility (LAF), consider th...
In its bimonthly monetary policy statement in February, the Reserve Bank of India (RBI) has kept the key policy rates unchanged.
Reserve Bank of India’s liquidity adjustment facility of LAF helps banks to adjust their daily liquidity mismatches.
LAF has two components: repo (repurchase agreement) and reverse repo.
  • Repo Rate: It is the interest rate at which the RBI provides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.
  • Reverse Repo Rate: The interest rate at which the RBI absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF. Basically, banks can park their money with RBI while receiving interest on it.
Hence both statements are correct.
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With reference to the Liquidity Adjustment Facility (LAF), consider the following statements:1. Repo Rate is the interest rate at which the RBIprovides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.2. Reverse Repo Rate is the interest rate at which the RBIabsorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.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
With reference to the Liquidity Adjustment Facility (LAF), consider the following statements:1. Repo Rate is the interest rate at which the RBIprovides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.2. Reverse Repo Rate is the interest rate at which the RBIabsorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.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 With reference to the Liquidity Adjustment Facility (LAF), consider the following statements:1. Repo Rate is the interest rate at which the RBIprovides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.2. Reverse Repo Rate is the interest rate at which the RBIabsorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.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 With reference to the Liquidity Adjustment Facility (LAF), consider the following statements:1. Repo Rate is the interest rate at which the RBIprovides overnight liquidity to banks against the collateral of government and other approved securities under the LAF.2. Reverse Repo Rate is the interest rate at which the RBIabsorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.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?.
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