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Q. In the context of Operation twist started by the Reserve Bank of India consider the following statements:
  1. It is related to simultaneous selling of short-term securities and buying of long term securities through Open Market Operations (OMO).
  2. It will result in bringing short term interest rates down.
Select the correct answer using the codes given below: 

  1. 1 only

  2. Both 1 and 2

  3. 2 only

  4. Neither 1 nor 2


Solution

The correct option is A
1 only
Explanation:

Reserve Bank of India launched ‘Operation Twist’ which involves the purchase and sale of government securities to boost the economy.

Statement 1 is correct: Under the Operation Twist RBI simultaneous selling of short term securities and buying of long term securities through Open Market Operations.

Statement 2 is incorrect: Operation Twist is a monetary policy tool aimed at stimulating economic growth through lowering long-term interest rates.(not the short term). It "twists" the ends of the yield curve where short-term yields go up and long-term interest rates drop simultaneously

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