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WHAT IS DIFFERENCE BETWEEN BANK RATE & REPO RATE
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Answer Posted / ambica
repo rate is the discount rate at which a central bank (the
fed) repurchases government securities from the commercial
banks (BofA...), depending on the level of money supply it
(the fed) decides to maintain in the country's monetary
system.
Reverse repo is an arrangement where a dealer or broker
agrees to buy a security and sell it to a customer
(investor) at a higher price on a specified date.
Bank rate is basically prime rate set by the fed. This is
the rate the fed charges commercial banks to borrow money
on a short term (usually overnight) basis.
Banks work off of the spread. They give money to depositors
at 4% and turn around and lend that money to others that
want to buy a home or expand their business at 6-8% or
higher depending on the risk.
If they lend more money than they take in on a given day
they may have to borrow money from the fed on a short term
basis which would be the bank rate
| Is This Answer Correct ? | 22 Yes | 47 No |
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