UPSC Prelims Practice Questions — RBI injects ₹25,101 cr. in banking system via 3-day VRR auction

Q1. In the present Liquidity Adjustment Facility (LAF) corridor operated by the RBI, by how many basis points is the Standing Deposit Facility (SDF) rate placed below the policy repo rate?

  • A. 15 basis points
  • B. 25 basis points
  • C. 40 basis points
  • D. 50 basis points

Q2. With reference to the RBI's liquidity management tools, consider the following statements: 1. Under a Variable Rate Repo (VRR) auction, the interest rate is determined through competitive bidding by banks, whereas under the erstwhile Fixed Rate Repo the rate was pre-announced by the RBI. 2. The Standing Deposit Facility (SDF), introduced in April 2022, replaced the Marginal Standing Facility (MSF) as the floor of the LAF corridor. 3. The Revised Liquidity Management Framework, under which VRR and VRRR became the principal short-term instruments, was announced by the RBI in February 2020. Which of the statements given above is/are correct?

  1. Under a Variable Rate Repo (VRR) auction, the interest rate is determined through competitive bidding by banks, whereas under the erstwhile Fixed Rate Repo the rate was pre-announced by the RBI.
  2. The Standing Deposit Facility (SDF), introduced in April 2022, replaced the Marginal Standing Facility (MSF) as the floor of the LAF corridor.
  3. The Revised Liquidity Management Framework, under which VRR and VRRR became the principal short-term instruments, was announced by the RBI in February 2020.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q3. The Liquidity Adjustment Facility (LAF), the umbrella framework under which Variable Rate Repo auctions are conducted by the RBI, was introduced on the recommendation of which one of the following committees?

  • A. Chakravarty Committee on the Review of the Working of the Monetary System
  • B. Narasimham Committee on Banking Sector Reforms
  • C. Urjit Patel Committee to Revise and Strengthen the Monetary Policy Framework
  • D. Y.V. Reddy Committee on Fuller Capital Account Convertibility

Q4. Consider the following instruments: 1. Standing Deposit Facility (SDF) 2. Marginal Standing Facility (MSF) 3. Cash Reserve Ratio (CRR) 4. Variable Rate Reverse Repo (VRRR) Which of the above is/are correctly identified as instruments operating under the Liquidity Adjustment Facility (LAF) of the RBI?

  1. Standing Deposit Facility (SDF)
  2. Marginal Standing Facility (MSF)
  3. Cash Reserve Ratio (CRR)
  4. Variable Rate Reverse Repo (VRRR)
  • A. 1 and 2 only
  • B. 2 and 4 only
  • C. 1, 2 and 4 only
  • D. 1, 2, 3 and 4

Q5. Which one of the following bodies is solely responsible for conducting Variable Rate Repo (VRR) auctions in India?

  • A. Department of Economic Affairs, Ministry of Finance
  • B. Financial Markets Operations Department of the Reserve Bank of India
  • C. Clearing Corporation of India Limited (CCIL)
  • D. Securities and Exchange Board of India (SEBI)