(i) Buying and selling of government securities in the market is known as open market operations.
(ii) Open market operations have an impact on the lending capacity of the banks.
(iii) It is an important means of controlling the money supply.
(iv) During inflation or excess demand situation the main motive of the Central Bank is to reduce the money supply. To suck excess liquidity from the market the Central Bank sells bonds, government securities and treasury bills.
(v) Due to low money supply, there is a fall in the volume of investment, income and employment resulting in lower demand.
(vi) During deflation, the main motive of the Central bank is to increase the money supply and to increase the money supply the Central Bank buys bonds, government securities and treasury bills.
