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Which of the following best describes the purpose of a benchmark lending rate?

easy Q13 of 15
Banking Awareness - Basics Of Banking & Banking Terminology
Which of the following best describes the purpose of a benchmark lending rate?
ATo decide interest on savings accounts
BTo control inflation directly
CTo act as a reference for loan pricing
DTo regulate cash reserves
Step-by-Step Solution

  1. Step 1: Identify benchmark role

    A benchmark acts as a reference point.

  2. Step 2: Apply to lending

    Benchmark rates guide banks in pricing loans.

  3. Final Answer:

    To act as a reference for loan pricing → Option C

  4. Quick Check:

    Benchmarks guide interest calculation on loans ✅
Quick Trick: Benchmark = reference rate.
Common Mistakes:
  • Assuming benchmarks directly control reserves.
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