myz-vgb.ru A Business Encyclopedia

Liquidity Adjustment Facility

Definition: The Liquidity Adjustment Facility or LAF is the principal operating monetary policy tool that allows banks to borrow money through repurchase agreements. This means, in order to meet short-term cash needs, bank, borrow money against government approved securities with an agreement to repurchase the same at a predetermined rate and date.

The liquidity adjustment facility is used to aide banks in the emergency arising out of severe cash shortage or acute liquidity crisis. It is used for modulating the short-term liquidity and transmitting the interest rate into the market.

There are two major components of the liquidity adjustment facility:

LAF

Repo Rate

Repo or repurchase option allows the scheduled commercial banks to borrow funds from the Reserve Bank of India against any government approved securities with an agreement to repurchase them in the near future at a predefined rate of interest. The rate at which RBI charges from the banks against such lending is called the Repo rate. Through these operations, the liquidity is injected into the economy or the financial system.

Reverse Repo Rate

This is just opposite to the Repo rate, here the RBI borrows money from the commercial banks against government approved securities. The rate at which RBI pays interest to the commercial bank is called a reverse repo rate. Through reverse repo operations, the liquidity is absorbed from the economy or the financial system.

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


different methods of demand forecastingproportionate stratified samplingpearson coefficient of correlation formulameaning of liquidatedifferent types of indifference curveswhat is the formula for inventory turnoverpolycentric staffing advantages and disadvantageswhat is the formula for inventory turnoverdiminishing of marginal utilitymarginal standing facility definitionhow to calculate operating profit margin ratiolaissez faire leadership exampleasset turnover ratiosdefine tqm total quality managementthe term glass ceiling refers tomeaning of transfer pricingattrition dashboardlaw of equi marginal utility definitionlaw of diminishing utility definitionsales and leaseback definitionnet asset turnover ratioinstinctual definitiondefine breakeventhe motivation hygiene theoryethnocentric management definitiondeontology meaningselloffsdefinition of whistle blowingtravelers chequefinance lease and operating leasestatement of strategic intentmedians definitionnational pension system nps indiaquota non probability samplingneo classical definitionhedging policy definitionexplain the concept of multiplierlikert's system of managementwhat is the meaning of marginal utilitycash mgtmeaning of semi variable costdashboards meaningdefinition of geocentrismquants meaninginstallment purchase definitiondistribution of sample proportiondefinition of outboundopinion polls definitionfixed order quantity inventory modelexplain expectancy theorynet asset turnover definitionpavlov behaviour theoryformula for asset turnoverarbitrage trading definitionspearman rank correlation examplescontractual vms examplessamuelson theory of trade cycleexpansionary monetary policy definitionbreakeven definitionexpectancy theory of motivation examplesdepreciation to fixed assets ratiosale leaseback agreementoperant conditioning marketingcapital budgeting evaluation techniquesagency theory of motivationadvantages and disadvantages of loan capitaloutbound synonymsmeaning of switch in hindiperformance evaluation in hrmdecentralisation of authoritydefinition subordinateswhat is a laissez-faire leader