Which of the following statements correctly explains the Marginal Standing Facility MSF ........

Economic Affairs Money Supply and Monetary Policy

Which of the following statements correctly explains the Marginal Standing Facility (MSF)?

It is the interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government

It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers.

It is a facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank

None

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Explanation:

Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system. Hence option 3rd is correct.