Question :
Open Market Operations refer to:
Option 1:
borrowings by scheduled banks from Reserve Bank of India (RBI)
Option 2:
lending by commercial banks to industry
Option 3: purchase and sale of government securities by RBI
Option 4: deposits mobilisation
Correct Answer: purchase and sale of government securities by RBI
Solution : The correct answer is the p urchase and sale of government securities by RBI.
A central bank's open market activities are the purchases and sales of government securities. This is a mechanism used by central banks to manipulate the money supply and interest rates.
A central bank injects money into the economy when it purchases government assets. This may result in reduced interest rates. When a central bank sells government securities, money is taken out of the economy. This may result in increased interest rates.
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