Consider the following statements:
1) Buying and selling of the eligible securities by Reserve Bank of India is an important feature of the open market operation.
2) Open market operation influences the volume of loans and advance made by the commercial banks in India.
Which of the statements given above is/are correct?

Only 1

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Only 2

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Both 1 and 2

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Neither 1 nor 2

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Solution

The correct option is C Both 1 and 2
Open market operations refer to buying and selling of Govt securities by the Central Bank, i.e. RBI to control money supply in the economy. This in turn has an effect on the amount of loans and various other advantages given by the commercial banks due to the change in money available for lending operations.

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