BACHELOR OF BUSINESS ADMINISTRATION

BUSINESS ADMINISTRATION

BUSINESS POLICY

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Through open market operations, the RBI buys and sells government securities to influence the supply of bank reserves. When the RBI wants to increase reserves, it does what?

A	a) Buys Securities
B	b) Sells Securities
C	Unattempted

Explanation:

Detailed explanation-1: -Similarly, when the central bank wants to increase the money supply in the market, it will purchase securities from the market. This step is taken to reduce the rate of interest and also to help in the economic growth of the country. This policy is known as the expansionary monetary policy.

Detailed explanation-2: -The Central Bank buys government securities with an aim to increase the money supply. Purchase of securities by the Central Bank leaves more money with the people. It also increases liquidity of the commercial banks to create more credit (in terms of demand deposits).

Detailed explanation-3: -The Fed uses open market operations to manipulate interest rates, starting with the federal funds rate used in interbank loans. Buying securities adds money to the system, lowers rates, makes loans easier to obtain, and increases economic activity.

Detailed explanation-4: -Q. The RBI sells securities in the open market using the monetary tool of open market operations.

There is 1 question to complete.