McqMate
| Q. |
How will a reduction in 'Bank Rate' affect the availability of credit? |
| A. | Credit will increase |
| B. | Credit will not increase |
| C. | Credit will decrease |
| D. | None of these |
| Answer» A. Credit will increase | |
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Explanation: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances to a commercial bank. Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market. |
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