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What is meant by Repo Rate and Reverse Repo Rate.
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Answer Posted / bangalore school of banking
hi,
many people dnt understand the actual meaning of repo rate and give the answer as its "the rate of interest" where as its the "redicounted rate",
repo means always a discount on the actual value,repo rate is this discount rate what many think that a discount means we l get less money,
in financial terms a discount means u buy a thing at 1lakh even though its written 1.2 lakh on it,this means a discount of rs.20k,on the other hand if we bother interest it means u buy at 1 lakh now and get 20 % interest after one year ie. u l get rs.20k,the meaning is one and the same that u get rs.20k only,all money market instruments like T bills,commercial papers etc. are always issued as a discount and not as an interest rate what is called coupon rate in financial terms,
so what mr.atul juyal has told is correct what many of u thought is wrongs,m giving below what he wrote,
thanks.
sachidananda rath,proprietor and faculty,BANGALORE SCHOOL OF BANKING,
for concepts of quanti and resoning pl type "BANK PO VIDEOS" or "SACHIDANANDA RATH VIDEOS" in google/youtube right now,
this is what mr.arun juyal wrote,
Repo rate is the discounting rate at which central bank
borrows security from commercial bank.Repo means repurchase
agreement b/w RBI &commercial bank.
Reverse repo is the rediscounting rate at which commercial
bank borrows discounted security from central bank ie RBI.
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