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QUESTION 6 You are representing the RBA and noted that the cash rate is higher than the RBA target cash rate. The RBA should buy bonds and thereby push more ESF into the banking system to reduce the pressure in the interb There is nothing that the RBA can do about this situation because the central bank is independent of the governmen The RBA should advise the banks to lend to each other at the agreed target cash rate. The RBA should sell bonds and thereby push more ESF into the banking system to reduce the pressure in the interba QUESTION 7 When banks want to borrow ESF from the RBA overnight... the bank is paying the cash rate target minus 25 basis points. the bank is paying the cash rate target. the bank has to provide collateral, i.e. security in form of a bond. the bank can get this loan unsecured.

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Answer #1

6. Correct option: A.

Explanation: The RBA should buy bonds and thereby push more ESF into the banking system to reduce the pressure in the interbank market because cash rate directly based on demand and supply of ESF(exchange settlement fund).

Buying bonds will create a surplus of cash in market, hence cash rate will decrease.

7. Correct option: C.

Explanation: Bank need to provide collateral of sufficient quality and value in return of borrowing.

RBA ask for collateral to secure the borrowing and remove the risk.

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