Question : What is the meaning of reverse repo rate?
Option 1: The rate at which RBI borrows money from foreign banks.
Option 2: The rate at which RBI borrows money from commercial banks.
Option 3: The rate at which commercial banks borrow money from RBI.
Option 4: The rate at which commercial banks borrow money from foreign banks.
Correct Answer: The rate at which RBI borrows money from commercial banks.
Solution : The correct option is The rate at which RBI borrows money from commercial banks.
Through the sale of securities and a promise to buy them back at a later time, the Reserve Bank of India borrows funds from commercial banks under a reverse repo agreement. Central banks employ it as a tool to remove excess liquidity from the banking sector.
