Question

Consider the following Statements: 

I. Bank rate is the rate of interest which RBI charges its clients on their short-term borrowing.

II. Repo rate is the rate of interest which RBI charges its clients on their long-term borrowing.

Which of the statements given above is/are correct?

1. I only
2. II only
3. Both I and II
4. Neither I nor II

Answer 1

Correct Answer - Option 4 : Neither I nor II

The correct answer is Neither I nor II.

• Bank Rate:
  • The bank rate is the rate of interest that is charged by a central bank while lending loans to a commercial bank.
  • In the event of a fund deficiency, a bank can borrow money from the central bank of a country.
  • In India’s case that would be the Reserve Bank of India.
  • The borrowing is done as per the basis of the monetary policy of that country.
• Repo Rate:
  • Repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Central bank of our country i.e Reserve Bank of India (RBI) to maintain liquidity.
  • In case of shortage of funds or due to some statutory measures.
  • It is one of the main tools of RBI to keep inflation under control.