Question

Q. With reference to the Open Market Operations (OMO), consider the following statements:

Select the correct answer using the codes given below:

• A. 1 only
• B. 2 only
• C. 1 and 2
• D. None of the above

Answer 1

The correct option is B 2 only

Explanation:

• Statement 1 is incorrect: Open market operations (OMO) refers to a central bank buying or selling short-term Treasuries and other securities in the open market in order to influence the money supply. RBI carries out the OMO through commercial banks and does not directly deal with the public.
• Statement 2 is correct: Open market operations or OMOs are conducted by the Reserve Bank of India (RBI) by way of sale and purchase of G-Secs to and from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis. When the Reserve Bank feels that there is excess liquidity in the market, it resorts to the sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.