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Q7
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Repo rate is the rate at which Reserve Bank of India (RBI) lends commercial banks, and reverse repo rate is the rate at which RBI borrows money from commercial banks.
Which of the following statements can be inferred from the above passage?
Options
- A.Decrease in repo rate will decrease cost of borrowing and increase lending by commercial banks.
- B.Decrease in repo rate will increase cost of borrowing and decrease lending by commercial banks.
- C.Increase in repo rate will decrease cost of borrowing and decrease lending by commercial banks.
- D.Increase in repo rate will increase cost of borrowing and Increase lending by commercial banks.
Answer
ASolution
Repo rate is the rate at which RBI lends commercial banks. The decrease in repo rate increases the flow of money in the economy, hence, increase leading by commercial banks and decrease cost of borrowing.
Hence, the correct option is (A).
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