Q. Consider the following statements regarding trading in money market:
1.Trading is done on a rate known as discount rate which is determined by the market.
2.The repo rate of the time works as the guiding rate for the current discount rate.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

Explanation: Trading is done on a rate known as discount rate which is determined by the market and guided by the availability of and demand for the cash in the day-to-day trading.

  • The ‘repo rate’ of the time (announced by the RBI) works as the guiding rate for the current ‘discount rate’.
  • Borrowings in this market may or may not be supported by collaterals.

Source: Ramesh Singh