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Cash Flow from Investing Activities

Q. Consider t...

Question

Q. Consider the following statements in reference to Open Market Operations (OMO):

Which of the statements given above is/are correct?

A

1 only

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B

2 only

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C

Both 1 and 2

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D

Neither 1 nor 2

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Solution

The correct option is D Neither 1 nor 2
Explanation:

Statement 1 is incorrect. There is an inverse relationship between bond prices and interest rates. Thus, the purchase of bonds via an OMO raises the price of bonds and reduces rates.

Statement 2 is incorrect. Outright Purchase is permanent and involves the outright selling or buying of government securities. A Repurchase Agreement is short-term and is subject to repurchase.

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