Question 1 (5 marks)

Explain how rate of interest is determined in the financial marketplace. What kind of risks do financial firms face when interest rate changes? What alternatives Banks can take to reduce their risk when a corporation wants to borrow a large amount? Explain

(2 + 3 = 5 marks)

Question 2 (5 marks)

Explain how commercial banks can finance economic growth of a country by utilizing its funds. What is the difference between Repurchase Agreement and Reverse Repurchase Agreement? Explain from the perspective of banks.