Globalization and Central Bank Monetary Policy Quiz
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Questions and Answers

What does a central bank do when it conducts reverse repo operations?

  • It decreases the interest rates offered on government securities to encourage banks to invest.
  • It increases the interest rates offered on government securities to discourage banks from investing.
  • It borrows money from the commercial banks in exchange for government securities. (correct)
  • It lends money to the commercial banks in exchange for government securities.

    • How do reverse repo operations impact liquidity in the banking system?

  • They have no impact on liquidity as they are purely accounting transactions.
  • They increase liquidity by injecting funds into the banking system.
  • They temporarily impact liquidity but then return the same amount of funds to the banking system.
  • They decrease liquidity by absorbing excess funds from the banking system. (correct)

    • In what situation would a central bank most likely conduct reverse repo operations?

  • When the central bank wants to encourage lending and investment in the economy.
  • When there is a sudden surge in demand for loans and banks need additional funds.
  • When there is an influx of excess liquidity in the economy. (correct)
  • When the economy is experiencing a downturn and needs a boost.

    • What is the primary objective of reverse repo operations?

    <p>To absorb excess liquidity from the market</p> Signup and view all the answers

    Which instrument is NOT typically used for implementing reverse repo operations?

    <p>Repo Rate</p> Signup and view all the answers

    How does a decrease in the reverse repo rate affect the financial market?

    <p>Increases the money supply and increases interest rates</p> Signup and view all the answers

    What is the central bank likely to do during high inflation and concerns about asset bubbles?

    <p>Increase the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)</p> Signup and view all the answers

    In a scenario of economic uncertainty, what unconventional tool might the central bank adopt to influence market expectations?

    <p>Adopt forward guidance to maintain low-interest rates</p> Signup and view all the answers

    What does the central bank do when grappling with deflationary pressures in the economy?

    <p>Implement quantitative easing (QE)</p> Signup and view all the answers

    How does the central bank address concerns about the lack of credit availability for small and medium-sized enterprises (SMEs)?

    <p>Provide low-cost funding specifically targeted at supporting these businesses</p> Signup and view all the answers

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