Economics • Banking & FinanceMedium
Which of the following describes 'Open Market Operations (OMOs)' conducted by the Reserve Bank of India?
A. The buying and selling of government securities in the open market to regulate rupee liquidity in the banking system✓ Correct Answer
B. The direct auctioning of corporate shares by public sector banks to raise equity capital
C. The setting of foreign exchange trading margins for authorized dealer banks
D. The allocation of credit quotas to commercial banks for priority sector lending
💡 Solution & Explanation
Open Market Operations involve the Reserve Bank of India buying or selling government securities in the open market to regulate rupee liquidity levels within the commercial banking system. When the central bank purchases securities, it injects liquidity, and when it sells them, it absorbs excess money supply. This quantitative monetary policy tool helps maintain macroeconomic stability and control inflation. OMOs directly influence the lending rates and reserve positions of commercial banks.
More Economics Banking & Finance questions
- What is the primary objective of introducing 'Marginal Cost of Funds based Lending Rate (MCLR)' by the RBI…
- What is the structural mandate and composition of the 'Financial Stability and Development Council'…
- In the context of the Indian banking sector, what does the term 'Basel III Leverage Ratio' measure?
- Which apex cooperative financial institution operates at the state level in Haryana to provide refinance and…
- Which of the following best describes 'Non-Performing Assets (NPAs)' in the Indian banking system?