Question

In the context of Indian economy, ‘Open Market Operations’ refers to

(a) borrowing by scheduled banks from the RBI

(b) lending by commercial banks to industry and trade

(c) purchase and sale of government securities by the RBI

(d) None of the above

Answer 1

(c) It is an activity by a central bank(RBI) to buy or sell government securities. The aim of open market operations is to manipulate the short term interest rate and the supply of base money in an economy, and indirectly control the total money supply.