Multiple choice

When do commercial banks prefer to park their excess funds with RBI?

(a) During the increase in repo rate (b) During the increase in reverse repo rate (c) During the increase in SLR (Statutory Liquidity Ratio)

  1. (a) only

  2. (b) only

  3. (c) only

  4. (a) and (c) only

  5. (a) and (b) only
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Repo rate is the rate at which RBI lends to commercial bank. An increase in reverse repo rate ensures better return to banks and hence, they prefer to park their excess liquidity with RBI.             SLR is an obligation on the part of commercial bank to maintain quite a good chunk of their resources in liquid shape. Hence, the bank has to park a large amount of liquid money with them.

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