1995 General Studies, all questions
UPSC Prelims 1995 · General Studies
Question 60: Economy and Social Development
Bank Rate implies the rate of interest
apaid by the Reserve Bank of India on the deposits of Commercial Banks
bcharged by Banks on loans and advances
cpayable on Bonds
dat which the Reserve Bank of India discounts the Bills of Exchange
AnswerThe answer is (d).
The Bank Rate is the rate at which the Reserve Bank of India rediscounts bills of exchange or lends to commercial banks, in effect its lending rate to the banking system. A rise makes borrowing from the RBI dearer and tightens credit. Interest paid on deposits, charged on loans and paid on bonds are different rates. Remember: Bank Rate is the RBI's rediscount rate.
Why each option is right or wrong
- (a) Interest the RBI pays on banks' deposits with it is a different rate.
- (b) Rates banks charge their customers are lending rates, not the Bank Rate.
- (c) Interest on bonds is the coupon rate, not the Bank Rate.
- (d) Right: the rate at which the RBI discounts bills of exchange.
Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 1995, General Studies. UPSC's own paper isn't online; the words are from a published compilation. The paper on upsc.gov.in.