Globalization and Central Bank Monetary Policy Quiz

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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?

To absorb excess liquidity from the market Signup and view all the answers

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

Repo Rate Signup and view all the answers

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

Increases the money supply and increases interest rates Signup and view all the answers

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

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

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

Adopt forward guidance to maintain low-interest rates Signup and view all the answers

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

Implement quantitative easing (QE) 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)?

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

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?

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

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

What is the primary objective of 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?

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?

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)?

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