Banking Exams Exam > Banking Exams Questions > Reverse repo meansa)Injecting liquidity by th...
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Reverse repo means
- a)Injecting liquidity by the Central Bank of a country through purchase of government securities
- b)Absorption of liquidity from the market by sale of government securities
- c)Balancing liquidity with a view to enhance economic growth rate
- d)Improving the position of availability of securities in the market
- e)None of these
Correct answer is option 'B'. Can you explain this answer?
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Reverse repo meansa)Injecting liquidity by the Central Bank of a count...
Reverse repo means absorption of liquidity from the market by sale of government securities.
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Reverse repo meansa)Injecting liquidity by the Central Bank of a count...
Understanding Reverse Repo
Reverse repo, or reverse repurchase agreement, is a financial transaction primarily used by central banks to manage liquidity in the economy.
What is Reverse Repo?
- A reverse repo occurs when the central bank sells government securities to commercial banks or financial institutions with an agreement to repurchase them later at a predetermined price.
Purpose of Reverse Repo
- The main goal is to absorb excess liquidity from the banking system. When banks have surplus funds, they can engage in reverse repos, effectively parking their excess reserves with the central bank.
How it Works
- Absorption of Liquidity: By selling government securities, the central bank reduces the amount of money circulating in the economy. This helps control inflation and stabilize the financial system.
- Interest Rates: Engaging in reverse repos can influence short-term interest rates, as it alters the supply of money available for lending in the market.
Importance in Monetary Policy
- Reverse repos are crucial tools in monetary policy for central banks. They help in maintaining the desired liquidity levels and ensuring that the banking system operates smoothly.
Conclusion
- In summary, the correct answer is option 'B' because reverse repos are about the absorption of liquidity from the market by the sale of government securities, which is essential for economic stability.
Reverse repo, or reverse repurchase agreement, is a financial transaction primarily used by central banks to manage liquidity in the economy.
What is Reverse Repo?
- A reverse repo occurs when the central bank sells government securities to commercial banks or financial institutions with an agreement to repurchase them later at a predetermined price.
Purpose of Reverse Repo
- The main goal is to absorb excess liquidity from the banking system. When banks have surplus funds, they can engage in reverse repos, effectively parking their excess reserves with the central bank.
How it Works
- Absorption of Liquidity: By selling government securities, the central bank reduces the amount of money circulating in the economy. This helps control inflation and stabilize the financial system.
- Interest Rates: Engaging in reverse repos can influence short-term interest rates, as it alters the supply of money available for lending in the market.
Importance in Monetary Policy
- Reverse repos are crucial tools in monetary policy for central banks. They help in maintaining the desired liquidity levels and ensuring that the banking system operates smoothly.
Conclusion
- In summary, the correct answer is option 'B' because reverse repos are about the absorption of liquidity from the market by the sale of government securities, which is essential for economic stability.
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Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer? for Banking Exams 2025 is part of Banking Exams preparation. The Question and answers have been prepared according to the Banking Exams exam syllabus. Information about Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Banking Exams 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer?.
Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer? for Banking Exams 2025 is part of Banking Exams preparation. The Question and answers have been prepared according to the Banking Exams exam syllabus. Information about Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Banking Exams 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Reverse repo meansa)Injecting liquidity by the Central Bank of a country through purchase of government securitiesb)Absorption of liquidity from the market by sale of government securitiesc)Balancing liquidity with a view to enhance economic growth rated)Improving the position of availability of securities in the markete)None of theseCorrect answer is option 'B'. Can you explain this answer?.
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