Question

Assertion: Commercial banks can deposit their surplus funds with RBI.

Reason: A high reverse repo rate enables the commercial banks to earn an income.

Options

• Both Assertion and Reason are true and Reason is the correct explanation of Assertion.

• Both Assertion and Reason are true but Reason is not the correct explanation of Assertion.

• Assertion is true and Reason is false.

• Both Assertion and Reason are false.

Answer 1

Both Assertion and Reason are true and Reason is the correct explanation of Assertion.

Explanation:

The claim is correct because commercial banks use the reverse repo rate to leave their extra cash with the RBI. The claim is properly explained by the fact that a higher Reverse Repo Rate means that banks make more money from these deposits.