Question: What is the significance of the Marginal Standing Facility (MSF) in the RBI\'s monetary policy?

Options:

1. It allows banks to borrow overnight funds at a higher rate
2. It is used to control inflation directly
3. It provides long-term loans to the government
4. It regulates the foreign exchange market

Correct Answer: It allows banks to borrow overnight funds at a higher rate

Solution:

The Marginal Standing Facility (MSF) allows banks to borrow overnight funds from the RBI at a higher rate, providing a safety valve against liquidity shortages.