Business Environment And International Business - Study Mode

Explanation

Solution: The correct answer is Option C: Banks take money from RBI after offering some securities. The Repo Rate is a crucial tool used by the Reserve Bank of India (RBI), which is India's central bank, to manage the money supply in the economy. Imagine it like this: Banks sometimes need money for a short period. Think of the RBI as a 'banker to banks'. What Happens at the Repo Rate? * Banks need funds: When banks are short on funds, they can borrow money from the RBI. * Securities as Collateral: To borrow this money, banks have to offer the RBI some form of security, like government bonds. * Repurchase Agreement (Repo): It's called a "repo" because the banks agree to repurchase these securities from the RBI at a slightly higher price at a later date. * The Repo Rate is the Interest: The difference between the selling and repurchase price represents the interest the bank pays to the RBI for the loan. This interest rate is the Repo Rate. Why are the other options incorrect? * Option A (RBI borrows short-term money from the market): This describes the Reverse Repo Rate, not the Repo Rate. In the reverse repo, RBI borrows money from banks. * Option B (Banks keeps the money with RBI): This describes when banks deposit money with RBI, and it is related to reserve requirements or the reverse repo rate (mentioned above). * Option D (Forex is purchased by RBI): While the RBI does deal with foreign exchange, the Repo Rate is specifically about short-term lending to banks against securities.