Q: 1 What is bank rate? What is current bank rate?

Bank rate, is the rate at which RBI lends money to other banks (or financial institutions)
The bank rate signals the central banks long-term outlook on interest rates. If the bank rate
moves up, long-term interest rates also tend to move up, and vice-versa.
Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate
of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank
pays for borrowing money (banks borrow money either from each other or from the RBI)
increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit. The
current bank rate is 9% as on 28/1/2014.
Source: http://iasmentor.wordpress.com/2008/02/11/repo-reverse-repo-bank-rate-call-rate-crrslr-definitions/

Q: 2 What is repo rate? Give historical data of last two years.

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the
demands they are facing for money (loans) and how much they have on hand to lend.
If the RBI wants to make it more expensive for the banks to borrow money, it increases the
repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the
repo rate.
Repo rate Historical Data of last two years:
Sr. No.

Effective Date

Repo Rate Year

17-04-2012

8.0 %

2012

29-01-2013

7.75 %

2013

19/03/2013

7.50%

2013

03-05-2013

7.25 %

2013
Source:

20/09/2013

7.50%

2013

29-10-2013

7.75 %

2013

28-01-2014

8.0 %

2013

http://maxutils.com/bws/rbipolicy.htm

Q: 3 What is reverse repo rate? What is current reverse repo rate?

This is the exact opposite of repo rate.
The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is
termed the reverse repo rate. The RBI uses this tool when it feels there is too much money
floating in the banking system
If the reverse repo rate is increased, it means the RBI will borrow money from the bank and
offer them a lucrative rate of interest. As a result, banks would prefer to keep their money
with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a
certain amount of risk)
Consequently, banks would have lesser funds to lend to their customers. This helps stem the
flow of excess money into the economy
Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the
banks, while repo signifies the rate at which liquidity is injected.
The current reverse repo rate is 7% as on 28/1/2014.
Source:

http://iasmentor.wordpress.com/2008/02/11/repo-reverse-repo-bank-rate-call-rate-

crr-slr-definitions/
http://maxutils.com/bws/rbipolicy.htm

Q: 4 What is monetary policy? What are different aspects covered in

monetary policy?
Monetary policy is a regulatory policy by which the central bank or monetary authority of a
country controls the supply of money, availability of bank credit and cost of money, that is,
the rate of Interest.
Monetary policy / monetary management are regarded as an important tool of economic
management in India. RBI controls the supply of money and bank credit. The Central bank
has the duty to see that legitimate credit requirements are met and at the same credit is not
used for unproductive and speculative purposes. RBI rightly calls its credit policy as one of
controlled expansion.

The four main aspects of monetary policies are bank reserve requirements, open market
operations, the federal funds rate and the discount rate.
Source:http://study-material4u.blogspot.in/2012/07/chapter-3monetary-policy-of-reserve.html

Q: 5 What is fiscal policy?

Fiscal policy refers to a government's spending and taxation policies intended to maintain
economic stability, which is indicated by levels of unemployment, interest rates, prices and
economic growth.
Source: http://kalyan-city.blogspot.com/2011/03/fiscal-policy-meaning-its-main.html

Q: 6 What is inflation rate? How it can be measured? Give historical data

of last 5 years of inflation rate.
The inflation rate is a measure of changing prices, typically calculated on a month-to-month
and year-to-year basis andexpressed as a percentage.
Measuring inflation rate with two indexes:
1) Consumer Price Index (CPI) - A measure of price changes in consumer goods and services
such as gasoline, food, clothing and automobiles. The CPI measures price change from the
perspective of the purchaser. U.S. CPI data can be found at the Bureau of Labor Statistics.
2) Producer Price Indexes (PPI) - A family of indexes that measure the average change over
time in selling prices by domestic producers of goods and services. PPIs measure price
change from the perspective of the seller. U.S. PPI data can be found at the Bureau of Labor
Statistics.
The percentage increase in the price of goods and services, usually annually.
Year

Average inflation rate

2009

14.97%

2010

9.47%

2011

6.49%

2012

11.17%

2013

9.13%

Source: 1. http://financial-dictionary.thefreedictionary.com/Inflation+Rate
2. http://www.investopedia.com/university/inflation/inflation2.asp
3. http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx

Q: 7 What is risk free interest rate?

Risk-free interest rate is the theoretical rate of return of an investment with zero risk,
including default risk. The risk-free rate represents the interest that an investor would expect
from an absolutely risk-free investment over a given period of time. Therefore, a rational
investor will reject all the investments yielding sub-risk-free returns.
Source:http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Risk-free_interest_rate.html