Q. With reference to Operation Twist, consider the following statements:
Select the correct answer using the codes given below:
Q. With reference to Operation Twist, consider the following statements:
Select the correct answer using the codes given below:
The correct option is C 1 and 3 only
Explanation:
Statement 1 is correct: Simultaneous purchase and sale of government securities under OMOs are popularly known as Operation Twist. Operation Twist is a way employed by the central bank to manage yields in the market. It is a program of quantitative easing used by the RBI that was first introduced by the Federal Reserves in the US in 1961.
Statement 2 is incorrect: Operation Twist is designed to induce downward pressure on longer-term interest rates by lowering long-term Treasury yields. The central bank buys long-term notes with the proceeds from short-term bills. This increases the demand for Treasury notes. Just like any other asset, as demand rises, so does the price. But higher bond prices are offset by a lower yield for investors. Lower longer-term yields help boost the economy by making loans less expensive for those looking to buy homes, purchase cars, and finance projects while saving becomes less desirable because it doesn't pay as much interest.
Statement 3 is correct: Operation Twist involves buying long-end debt while selling short-tenor bonds to keep borrowing costs down.
Explanation:
Statement 1 is correct: Simultaneous purchase and sale of government securities under OMOs are popularly known as Operation Twist. Operation Twist is a way employed by the central bank to manage yields in the market. It is a program of quantitative easing used by the RBI that was first introduced by the Federal Reserves in the US in 1961.
Statement 2 is incorrect: Operation Twist is designed to induce downward pressure on longer-term interest rates by lowering long-term Treasury yields. The central bank buys long-term notes with the proceeds from short-term bills. This increases the demand for Treasury notes. Just like any other asset, as demand rises, so does the price. But higher bond prices are offset by a lower yield for investors. Lower longer-term yields help boost the economy by making loans less expensive for those looking to buy homes, purchase cars, and finance projects while saving becomes less desirable because it doesn't pay as much interest.
Statement 3 is correct: Operation Twist involves buying long-end debt while selling short-tenor bonds to keep borrowing costs down.
