What do you mean by open market operations ?
Answers
What do you mean by open market operations ?
Definition:
The Open Market Operations refers to the sale and purchase of government securities and treasury bills by the central bank of the country with a view to regulate the supply of money in the economy.
When the central bank wants to increase the money supply in the economy, it purchases the government securities, i.e., bills, and bonds. On the other hand, the central bank sells the government bonds and securities if the money supply is to be curtailed. The open market operations are one of the most widely used measures of monetary control.
The central bank carries out its open market operations through the commercial banks, i.e. it does not deal directly with the public. The major buyers of government bonds comprise of commercial banks, financial institutions, big business corporations, and individuals with high savings. These buyers hold their respective accounts in the banks and on the purchase of the government bonds the money gets transferred to the RBI account.
Explanation:
Open market operations is the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.The objective of OMO is to regulate the money supply in the economy.When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.RBI carries out the OMO through commercial banks and does not directly deal with the public.