Economics • Banking & FinanceMedium
What is the primary role of the 'Collateralized Borrowing and Lending Obligation (CBLO)' or its modern replacement Tri-party REPO in the Indian money market?
A. Providing long-term foreign exchange reserves to commercial banks.
B. Enabling market participants to borrow and lend short-term funds against basket of eligible collateral.✓ Correct Answer
C. Issuing sovereign debt directly to retail investors without intermediaries.
D. Regulating interest rates on cooperative bank deposits.
💡 Solution & Explanation
The Tri-party REPO mechanism functions as an essential segment of the Indian money market, allowing institutional participants to secure short-term liquidity against a pool of approved government securities managed by a neutral custodian. Traditional monetary instruments like foreign exchange reserves or retail sovereign bonds operate through completely separate regulatory frameworks and distribution channels. This electronic platform enhances market transparency and reduces settlement risks for participants trading surplus funds overnight.
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