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Questions and Answers
What does a central bank do when it conducts reverse repo operations?
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?
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?
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?
What is the primary objective of reverse repo operations?
Which instrument is NOT typically used for implementing reverse repo operations?
Which instrument is NOT typically used for implementing reverse repo operations?
How does a decrease in the reverse repo rate affect the financial market?
How does a decrease in the reverse repo rate affect the financial market?
What is the central bank likely to do during high inflation and concerns about asset bubbles?
What is the central bank likely to do during high inflation and concerns about asset bubbles?
In a scenario of economic uncertainty, what unconventional tool might the central bank adopt to influence market expectations?
In a scenario of economic uncertainty, what unconventional tool might the central bank adopt to influence market expectations?
What does the central bank do when grappling with deflationary pressures in the economy?
What does the central bank do when grappling with deflationary pressures in the economy?
How does the central bank address concerns about the lack of credit availability for small and medium-sized enterprises (SMEs)?
How does the central bank address concerns about the lack of credit availability for small and medium-sized enterprises (SMEs)?
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