Question : Open market operations refer to the:
Option 1: Buying and selling of government securities by the central bank
Option 2: Buying and selling of goods and services in the international market
Option 3: Buying and selling of stocks and bonds in the financial market
Option 4: Buying and selling of foreign currencies in the foreign exchange market
Correct Answer: Buying and selling of government securities by the central bank
Solution : The correct answer is (a) Buying and selling of government securities by the central bank.
Open market operations are one of the primary tools used by central banks to implement monetary policy. In this process, the central bank buys or sells government securities, such as treasury bills, bonds, or notes, on the open market.
When the central bank wants to increase the money supply and stimulate economic activity, it buys government securities from commercial banks and other financial institutions. This injects money into the banking system, providing banks with additional reserves to lend out and increase credit availability.
Conversely, when the central bank wants to reduce the money supply and control inflationary pressures, it sells government securities to commercial banks and financial institutions. This drains money from the banking system, reducing the amount of funds available for lending and credit creation.
Question : Which of the following is one of the Open Market Operations of the Reserve Bank of India?
Option 1: Buying and selling of bonds issued by the Government in the open market
Option 2: Buying and selling of bonds issued by commercial banks in the open market
Option 3: Only buying of bonds issued by the Government in the open market
Option 4: Only selling of bonds issued by the Government in the open market
Question : Which of the following is not a capital account transaction?
Option 1: Purchasing foreign stocks and bonds
Option 2: Making a foreign direct investment
Option 3: Borrowing from a foreign bank
Option 4: Buying goods and services from a foreign country
Question : Which of the following is an example of a capital account transaction?
Option 1: Importing goods and services from another country
Option 2: Exporting goods and services to another country
Option 3: Buying foreign stocks and bonds
Option 4: Receiving foreign aid
Question : The money market deals with the trading of:
Option 1: Stocks and bonds
Option 2: Currencies and commodities
Option 3: Short-term debt instruments
Option 4: Long-term government securities
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