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DMPQ: Explain the following terms: ( Econmomy) a) Bank rate b) Merchant discount rate c) Open Market operations d) Repo rate e) MSF

RAS/RTS Prelims and Mains Exam Preparation

Bank rate:  Bank rate is the rate at which RBI lends long term to commercial banks. Bank rate is a tool which RBI uses for managing money supply.

 

Merchant discount rate: It is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card is used for payments (like swiping) in their stores. The merchant discount rate is expressed in percentage of the transaction amount.

 

Open market operations:      IT is conducted by RBI via sale or purchase of government securities. It influences the volume of money and credit in the economy.

 

Repo rate:    Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Higher repo rate is used to control inflation.

 

Marginal standing facility:    Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in its credit policy of May 2011.  MSF is the rate at which banks are able to borrow overnight funds from RBI against the approved government securities.

 

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