The inflationary impact of the inflow of foreign capital in India is neutralised by the Reserve Bank of India by which one of the following methods?

Permitting outflow of foreign exchange

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Sale of securities in the open market

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Facilitating imports of essential commodities

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Permitting depreciation of Indian rupee in the foreign exchange market

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Solution

The correct option is A Sale of securities in the open market
Open Market Operations (OMOs): The OMO is sale and purchase of govt securities and Treasury Bills by the central bank of the country. When the central bank decides to pump money into circulation, it buys back the govt securities, bills and bonds and when it decides to reduce money in circulation, it sells the Govt bonds and securities. It is a most powerful tool for monetary control.

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