DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name Staff Member : P. BADARINARAYANA
Designation : Sr. Lecturer
Branch : DCCP
Institute : Govt. Polytechnic, NELLORE
Year/Semester : VI Semester
Subject : BANKING II
Sub. Code : CCP-604(B)
Topic : Functions of Reserve Bank of India
Duration : 50 Mts.
Sub Topic : Open Market Operations
Teaching Aids : Animations
CCP604(B)44 1
Objective

On completion of this lesson, you would

be able
 To comprehend the Repurchase Options
(Repo) function of RBI.

CCP604(B)44 2
Introduction

In the last lesson we have seen the open market

operations of RBI.
 Today we will see the repurchase operations of
RBI

CCP604(B)44 3
Repurchase Options
 Repurchase Agreements or Repurchase Options
(Repos) is a recent development in the Indian
money market.
 Under a Repo transaction, the borrower places with
the lender certain acceptable security against funds
received and agrees to reverse this transaction on a
pre-determined future date at agreed interest cost.

CCP604(B)44 4
Repurchase Options
 These transactions are structured to suit the needs
of both the borrower and the lender.

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Repurchase Options

 Initially, the Repo auctions conducted by RBI for

very short periods of one or two days and
thereafter Repos up to 14 days have been
introduced.
 The interest is determined by the forces of
demand and supply in the market and build in
the structure of the repo transaction.

CCP604(B)44 6
Repurchase Options

 RBI has switched over to the international usage

of the terms “Repo” and “Reverse Repo” from
October, 2004.
 Internationally, Central Banks use the term
“Repo” for injecting liquidity into the system while
“Reverse Repo” for absorption of liquidity.

CCP604(B)44 7
Summary

In this lesson we have seen the Repurchase

Options of RBI.
 We will see another function in the next lesson.

CCP604(B)44 8
Quiz

1. Repo means

c) Reproduction operations
d) Repurchase Operations.
e) Reporting Operations.
f) Redundant Operations.

CCP604(B)44 9
Frequently asked questions

1. What is meant by Repurchase Options? Why the

RBI resorts such options?

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