General Knowledge - Indian Economy - Discussion

Discussion :: Indian Economy - Indian Economy (Q.No.61)

61. 

If the RBI adopts an expansionist open market operations policy, this means that it will

[A]. buy securities from non-government holders
[B]. sell securities in the open market
[C]. offer commercial banks more credit in the open market
[D]. openly announce to the market that it intends to expand credit

Answer: Option C

Explanation:

No answer description available for this question.

Devisree said: (Apr 16, 2013)  
What is open market?

Surinder Puri said: (Aug 7, 2013)  
Open Market operation by RBI means to sell or buy securities in open market with a view to expand or contract the credit in the country. Thus right answer should be (B).

Gaurav said: (Aug 7, 2013)  
@Surinder.

I think the correct answer is A as the RBI here is following expansionist policy. i.e. it wants to inject money into the market.

Vatsal said: (Jun 28, 2015)  
Open market is that where gov guilt edge securities are sold like commercial paper etc like these. So its answer is B to sell securities in open market.

Sumith said: (Jul 11, 2016)  
An open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to a bank or a group of banks. The central bank can either buy or sell government bonds in the open market or, which is now mostly the preferred solution, enter into a repo or secured lending transaction with a commercial bank: the central bank gives the money as a deposit for a defined period and synchronously takes an eligible asset as collateral.

A central bank uses OMO as the primary means of implementing monetary policy. The usual aim of open market operations is - asides from supplying commercial banks with liquidity and sometimes taking surplus liquidity from commercial banks - to manipulate the short-term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply, in effect expanding money or contracting the money supply. This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments. Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation.

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