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QUESTION 4 Which of the following statements does describe the cash rate most accurately? The cash rate is the interest rate that the RBA charges banks for unsecured overnight loans. The cash rate is the interest rate that banks charge each other for unsecured overnight loans The cash rate is the interest rate that the RBA charges banks for secured overnight loans. The cash rate is the interest rate that banks charge each other for secured overnight loans. QUESTION 5 You are the bank manager and currently the cash rate is very high. You should NOT own a relative large amount of ESF because you can borrow it on short notice cheaply. You should own a relative large amount of ESF in case of a liquidity shortage, but lend it out to other banks to earn the cash rate. You should borrow a relative large amount of ESF now to be prepared for a liquidity shortage in the future You should own a relative large amount of ESF and keep it on your ESA (exchange settlement account) in case of a liquidity shortage.Multiple choice question

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Answer #1

Question 4:

Option B is correct.

Cash Rate is the interest rate that banks charge each other for unsecured overnight loans.

Explanation:

Cash Rate is the interest rate fixed by Reserve Bank of Australia for banks to borrow and earn on loans to other banks on overnight basis.

Question 5:

Option B is correct.

Explanation:

In case of high level of cash rate, it is better to keep relatively large amount of Exchange Stabilization Fund as borrowing in time of high cash rate is costlier.

In case of High cash rate, extra funds can be lent to other banks to earn interest.

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