Chapter 3
Banking and Financial Systems
Lok Sewa Aayog (Public Service Commission) past exam questions
Past questions and answers
1 question set from this chapter. Most repeated first.
- 2080 · 2nd · 5 marks
Distinguish between Bank Rate and Repo Rate.
Answer
Bank Rate vs Repo Rate
| Basis | Bank Rate | Repo Rate |
|---|---|---|
| Meaning | The rate at which the central bank (Nepal Rastra Bank) lends to commercial banks against eligible securities without a repurchase agreement. | The rate at which the central bank lends short-term funds to commercial banks against government securities with an agreement to repurchase them. |
| Tenor | Long-term lending. | Short-term lending (generally overnight to 28 days). |
| Repurchase agreement | No repurchase agreement involved. | Repurchase agreement (repo) involved. |
| Security | Eligible securities like government bonds, treasury bills. | Mainly government securities. |
| Purpose | Meets long-term liquidity needs; signals long-term policy stance. | Manages day-to-day liquidity and short-term interest rate stability. |
| Frequency | Used less frequently. | Used frequently as the main short-term monetary tool. |
| Relationship | Normally higher than repo rate. | Normally lower than bank rate. |
| Effect | Affects long-term lending rates and investment. | Affects call money rate and short-term rates. |
In brief: Bank Rate is the long-term lending rate without a repurchase agreement, whereas Repo Rate is the short-term lending rate under a repurchase agreement. Both are quantitative tools of monetary policy used by Nepal Rastra Bank to control credit and liquidity.
Answer checked by Claude Sonnet · Oct 21, 2026
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