Other salient features of the Revised Liquidity Adjustment Facility

Here are the other salient features of the Revised Liquidity Adjustment Facility (LAF):

• Introduction of a Standing Deposit Facility (SDF). The SDF is a facility through which banks can park their excess liquidity with the RBI at a pre-determined rate of interest. This will help to absorb excess liquidity in the system and prevent it from causing inflation.
• Increase in the frequency of LAF auctions. The LAF auctions will now be conducted on a weekly basis, instead of monthly basis as was the case earlier. This will help to ensure that the liquidity in the system is more evenly distributed throughout the month.
• Introduction of a marginal standing facility (MSF). The MSF is an emergency window through which banks can borrow money from the RBI at a pre-determined rate of interest. This will provide banks with a last resort option to meet their liquidity needs in case of a sudden shortage.
• Increase in the flexibility of LAF operations. The RBI has relaxed the eligibility criteria for participating in LAF auctions. This will make it easier for banks to access the LAF and will help to improve the overall liquidity in the system.

Here are some MCQs on the Revised LAF:

1. Which of the following is not a component of the Revised LAF?
   • Repo rate
   • Reverse repo rate
   • Standing Deposit Facility (SDF)
   • Marginal Standing Facility (MSF)
   • The correct answer is (c). The Revised LAF has three components: repo rate, reverse repo rate, and SDF. MSF is not a component of the Revised LAF.
2. What is the purpose of the SDF?
   • To inject liquidity into the system
   • To absorb liquidity from the system
   • To provide banks with a last resort option to meet their liquidity needs
   • All of the above
   • The correct answer is (b). The SDF is a facility through which banks can park their excess liquidity with the RBI. This helps to absorb excess liquidity from the system and prevent it from causing inflation.
3. How often are LAF auctions conducted under the Revised LAF?
   • Monthly
   • Weekly
   • Biweekly
   • Daily
   • The correct answer is (b). LAF auctions are conducted on a weekly basis under the Revised LAF.
4. Which of the following is the pre-determined rate of interest at which banks can park their excess liquidity with the RBI under the SDF?
   • Repo rate
   • Reverse repo rate
   • MSF rate
   • None of the above
   • The correct answer is (c). The pre-determined rate of interest at which banks can park their excess liquidity with the RBI under the SDF is the MSF rate.