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When the central bank buys the security, this agreement of purchase also has specifications about the date and price of resale of this security. The rate at which these agreements are carried out is known as ?

Solution

✅ Correct Option: 1

When the central bank buys securities from commercial banks under an agreement specifying the date and price of resale, it is lending funds against securities through a repurchase agreement. The rate at which such repurchase agreements are carried out is the repo rate. In a reverse repo, the central bank sells securities with an agreement to repurchase. Hence option 1.

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