Economics • Banking & FinanceMedium
What is the primary role of the 'Collateralized Borrowing and Lending Obligation (CBLO)' or its modern variant Tri-Party Repo in the Indian money market?
A. Providing long-term foreign currency loans to export-oriented units.
B. Enabling market participants to borrow and lend short-term funds against eligible collateral.✓ Correct Answer
C. Regulating the credit-deposit ratio of regional rural banks.
D. Issuing sovereign guarantees for infrastructure projects.
💡 Solution & Explanation
The Tri-Party Repo, replacing the earlier Collateralized Borrowing and Lending Obligation, facilitates secure short-term borrowing and lending in the Indian money market using government securities as collateral. By utilizing a neutral third-party custodian, market participants mitigate counterparty risk while managing their daily liquidity requirements. Such instruments are regulated by the Reserve Bank of India to ensure stability in short-term interest rates.
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