Question
Download Solution PDFWhich RBI tool refers to buying and selling of bonds issued by the Government in the open market?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Open Market Operations.
Key Points
- Open market operations (OMO) refer to a central bank's buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system.
- Securities purchases inject money into the banking system and stimulate growth, while sales of securities do the opposite and contract the economy.
- RBI carries out the OMO through commercial banks and does not directly deal with the public.
- OMO is one of the tools that RBI uses to smoothen the liquidity conditions throughout the year and minimize its impact on the interest rate and inflation rate levels.
Additional Information
- RBI was founded on 1 April 1935, in Kolkata.
- HQ in Mumbai.
- Present Governor is Sanjay Malhotra.
- The RBI is responsible for implementing monetary and credit policies, issuing currency notes, being a banker to the government, a regulator of the banking system, manager of foreign exchange, and regulator of payment & settlement systems while continuously working towards the development of Indian financial markets.
- RBI is not a Commercial Bank.
- RBI was nationalized on 1st January 1949.
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