Prelims 2013

An increase in the Bank Rate generally indicates that

(a) Market rate of interest is likely to fall.
(b) Central Bank is no longer making loans to commercial
banks.
(c) Central Bank is following an easy money policy.
(d) Central Bank is following a tight money policy.
 Prelims 2012 Prelims 2013
Which of the following measures would result in an increase 'Open Market Operations' refers to:
in the money supply in the economy? (a) borrowing by banks from the RBI
1. Purchase of G-Sec from the public by the Central Bank. (b) lending by commercial banks to industry and
2. Deposit of currency in commercial banks by the public. trade
3. Borrowing by the government from the Central Bank. (c)purchase and sale of government securities by the
4. Sale of government securities to the public by the Central RBI
Bank. (d) None of the above

Select the correct answer using code given below:

(a) 1 only
(b) 2 and 4 only
(c) 1 and 3 only
(d) 2, 3 and 4 only
 Prelims 2012 Prelims 2013
Which of the following measures would result in an increase 'Open Market Operations' refers to:
in the money supply in the economy? (a) borrowing by banks from the RBI
1. Purchase of G-Sec from the public by the Central Bank. (b) lending by commercial banks to industry and
2. Deposit of currency in commercial banks by the public. trade
3. Borrowing by the government from the Central Bank. (c)purchase and sale of government securities by the
4. Sale of government securities to the public by the Central RBI
Bank. (d) None of the above

Select the correct answer using code given below:

(a) 1 only
(b) 2 and 4 only
(c) 1 and 3 only
(d) 2, 3 and 4 only
 Practice MCQ
With reference to Targeted Long Term Repo Operations (TLTROs),
consider the following statements:
1. Unlike the Normal Repos, the Targeted Long Term Repo
Operations (TLTROs) have longer maturity period.
2. The rate of Interest on the Targeted Long Term Repo Operations
(TLTROs) is usually higher than Repo Rate.
3. The liquidity availed by the Banks through this route has to be
injected into certain specified sectors.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Practice MCQ
Which among the following is/are likely objectives of Long-Term
Repo Operations (LTROs) carried out by RBI:
1. To inject long term liquidity into the economy at Repo rates.
2. To reduce rate of Interest on long term loans.
3. To enable the Banks to earn more profits.
Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
 Criteria Repo MSF
Meaning Tool used by the RBI to inject either short- Tool used by the RBI to inject short-term
term or long-term liquidity liquidity on an overnight basis
Rate of Interest Fixed Rate Repo or Variable rate Repo 25 basis points above Repo rate
Tenor Ranges from 1 day to 3 years 1 day
Maximum Limit No Maximum Limit 2% of NDTL
Can Banks use G-Secs which No Yes.
are part of SLR?
What happens during • During Inflation, Repo rate is increased. • During Inflation, MSF is increased.
Inflation and slowdown? • During Slowdown, Repo rate is decreased. • During Slowdown, MSF is decreased.
Criteria Reverse Repo Standing Deposit Facility (SDF)
Purpose Used for sucking out excess liquidity Used for sucking out excess liquidity
Eligible entities Scheduled Banks (including RRBs) Scheduled Banks (including RRBs)
G-Secs as Collateral RBI need to provide G-Secs as collateral to suck RBI need not provide any G-Secs as collateral to
out money from banks suck out money
Maturity Overnight Overnight only.
Up to 14 Days
Available Only when RBI issues notification. Hence, it is at Available everyday. Hence, it is at the discretion of
the discretion of the RBI. Banks.
Provided under RBI Act, 1934 Yes Yes
Limits Min: 5 Crores Min: 1 crore
Max: No Limit Max: No Limit
Criteria Standing Liquidity Marginal Standing Repo Reverse Repo Standing Deposit Facility
facility Facility (SDF)
Purpose Used for injecting Used for Injecting Used for Injecting Used for Sucking out Used for Sucking out
money money Money liquidity liquidity
Eligible entities Standalone Primary Scheduled Banks Scheduled Banks Scheduled Banks Scheduled Banks
Dealers (including RRBs) (including RRBs) (including RRBs) (including RRBs)
Primary Dealers Primary Dealers Primary Dealers Primary Dealers
G-Secs as Collateral Standalone Primary Eligible Participants Eligible RBI need to provide G- RBI need not provide any
Dealers need to must keep G-Secs to Participants must Secs as collateral to G-Secs as collateral to
keep G-Secs with borrow loans from keep G-Secs to suck out money from suck out money
RBI to avail loans RBI borrow loans from banks
RBI
Can G-Secs which N/A Yes. No. N/A. N/A
are part of SLR be
used to borrow
from RBI?
Relationship with Same as Repo 25 basis points N/A Not linked to Repo. 25 basis points below
Repo higher than Repo Repo.
Provided under RBI No No Yes Yes Yes
Act, 1934
Limits N/A Up to 2% of NDTL Min: 5 Crores Min: 5 Crores Min: 1 crore
Max: No Limit Max: No Limit Max: No Limit
 Earlier Monetary Policy Corridor Modified Monetary Policy Corridor
MSF 4.25% MSF 6.15%
Repo 4% Repo 5.90%
Fixed rate Reverse Repo 3.35% Standing Deposit Facility 5.65%

Asymmetric Monetary Policy Corridor Symmetric Monetary Policy Corridor

Difference between Upper limit and Lower Difference between Upper limit and Lower
Limit was 90 basis points Limit is now 50 Basis points

Fixed Rate Reverse Repo acted as floor for Fixed Rate Reverse Repo replaced by SDF as
the Corridor the new floor
 Practice MCQ Practice MCQ
With respect to Modified Monetary Policy Corridor, consider the With reference to Marginal Standing Facility (MSF), consider the
following statements: following statements:
1. The Modified Monetary Policy Corridor is a symmetric corridor 1. It is a tool used by the Banks to borrow from the RBI on an
with a width of 100 basis points. overnight basis.
2. The MSF is always higher than the Repo. 2. The Banks can use G-Secs which are part of Statutory Liquidity
3. The Fixed rate reverse Repo has been replaced with Standing Ratio (SLR) to borrow money from RBI.
Deposit Facility (SDF) 3. Presently, there is no limit on the Banks' borrowings under
MSF.
Which among the statements given above is/are correct?
(a) 1 only Which of the statements given above is/are correct?
(b) 1 and 2 only (a) 1 only
(c) 2 and 3 only (b) 1 and 2 only
(d) 1, 2 and 3 (c) 1 and 3 only
(d) 1, 2 and 3
Practice MCQ
On which among the following grounds is the RBI likely to reduce Practice MCQ
the Reverse Repo rate? Which among the following categories of Banks can use the
1. To increase the money supply in the Economy Liquidity Adjustment Facility (LAF) of the RBI to manage their
2. To prevent the banks from making excessive profits liquidity?
3. To increase the rate of Interest on the loans given by Banks 1. Scheduled Commercial banks
2. Scheduled Cooperative banks
Select the correct answer using the code given below: 3. Regional Rural banks (RRBs)
(a) 1 only
(b) 1 and 2 only Select the correct answer using the code given below:
(c) 1 and 3 only (a) 1 only (b) 1 and 2 only (c) 1 and 3 only. (d) 1, 2 and 3
(d) 1, 2 and 3 only
 Practice MCQ
Which among the following statements is incorrect with respect to
Standing Deposit Facility (SDF)?
(a) The Standing Deposit Facility (SDF) enables the RBI to suck out
excess liquidity from economy.
(b) The G-Secs are not required to be used as collateral under the
Standing Deposit Facility (SDF)
(c) The SDF has replaced Fixed Rate Reverse Repo as floor of the
LAF corridor.
(d) The SDF is lower than Fixed Rate Reverse Repo.