Consider the following statements 1 Open Market operations OMOs refer to the purchase...........

Indian Economy Financial System

Consider the following statements:

1. Open Market operations (OMOs) refer to the purchase/sale of government securities in the open market by the central bank

2. OMOs adjust liquidity in the market

3. It is a part of Liquidity Adjustment Facility (LAF) of RBI.

Choose the correct statement using the code given below

1 and 2

1 and 3

Only 1

All are correct

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Explanation:

Only statements 1&2 are correct.

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.
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.
3rd statement is incorrect: Open Market Operations are not part of Liquidity Adjustment Facility (LAF) of RBI.

Hence option 1st is correct.

By: Abhipedia

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Vinay Kumar

Sir! Open market Operations is the part of LAF of RBI. please correct.

Shubham Tiwari

Although the RBI uses Open Market Operations (OMO) along with other monetary policy tools such as repo rate, cash reserve ratio and statutory liquidity ratio to adjust the quantum and price of money in the system.

Shubham Tiwari

LAF has two components - repo (repurchase agreement) and reverse repo. When banks need liquidity to meet its daily requirement, they borrow from RBI through repo.

abhishek

i am not able to tick the question