Explanation:

Correct Option: (c) Explanation:  Statement 3 is incorrect: Under LTRO, RBI provides longer term (one- to threeyear) loans to banks at the prevailing repo rate. As banks get long-term funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers. LTRO helped RBI ensure that banks reduce their marginal cost of funds-based lending rate, without reducing policy rates. Supplementary notes: Monetary Policy Tools  Liquidity Adjustment Facility (LAF): The LAF is the key element in the monetary policy operating framework of the RBI (introduced in June 2000). On a daily basis, the RBI stands ready to lend to or borrow money from the banking system, as per the need of the time, at fi xed interest rates (repo and reverse repo rates). Together with moderating the fund-mismatches of the banks, LAF operations help the RBI to effectively transmit interest rate signals to the market.  Open Market Operations (OMOs): OMOs are conducted by the RBI via the sale/purchase of government securities (G-Sec) to/from the market with the primary aim of modulating rupee liquidity conditions in the market. OMOs are an effective quantitative policy tool in the armory of the RBI but are constrained by the stock of government securities available with it at a point in time.  Long Term Repo Operations: Under LTRO, RBI provides longer term (oneto three-year) loans to banks at the prevailing repo rate. As banks get longterm funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers. LTRO helped RBI ensure that banks reduce their marginal cost of fundsbased lending rate, without reducing policy rates.