| Consider the following statement: |
| 1. Liquidity Adjustment Facility (LAF) was introduced by RBI in 2000. |
| 2. RBI has the discretion to change the spread between the repo rate and the reverse repo rate as when appropriate. Which of these statement is/are correct? |
A) Only 1
B) Only 2
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: C
Solution :
[c] Liquidity adjustment facilities are used to aid banks in resolving any short-term cash shortages during periods of economic instability or from any other form of stress caused by forces beyond their control. Various banks will use eligible securities as collateral through a repo agreement and will use the funds to alleviate their short-term requirements, thus remaining stable.
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