BANKING AFFAIRS

Detailed explanation-1: -Reason : When Central bank sell security, it absorbs excessive money from public. It reduces flow of money in market i.e. reduce flow of money that is also known as deflation.

Detailed explanation-2: -Open market operations allow the Federal Reserve (or the central banks in other countries) to prevent price inflation or deflation without directly interfering in the market economy. Instead of using regulations to control lending, the Fed can simply raise or lower the cost of borrowing money.

Detailed explanation-3: -By buying or selling bonds, bills, and other financial instruments in the open market, a central bank can expand or contract the amount of reserves in the banking system and can ultimately influence the country’s money supply. When the central bank sells such instruments it absorbs money from the system.