Question

Statement (1): Bank rate is the rate of interest at which Central Bank lends to the commercial banks for long term.

Statement (2): Repo rate is the rate of interest at which Central Bank lends to commercial banks for their short term requirements.

Options

• Statement 1 is true, Statement 2 is false.

• Statement 2 is true, Statement 1 is false.

• Both the statements are true.

• Both the statements are false.

Answer 1

Both the statements are true.

Explanation:

Both statements accurately identify the Central Bank’s major monetary policy tools. The bank rate is only used to provide long-term loans to commercial banks with no collateral requirements, whereas Repo Rate is the interest rate levied on short-term loans backed by government assets.