BANKING AFFAIRS

Detailed explanation-1: -Notes: • Variable reserve rates and Open Market Operations are instruments of Monetary Policy. Open Market Operations is when the RBI involves itself directly and buys or sells short-term securities in the open market. This is a direct and effective way to increase or decrease the supply of money in the market.

Detailed explanation-2: -Ans. The various different tools and instruments of monetary policy are as follows: cash reserve ratio, statutory liquidity ratio, bank rate, repo rate, reserve repo rate and open market operations.

Detailed explanation-3: -Open market operations refer to the selling and purchasing of the treasury bills and government securities by the central bank of any country in order to regulate money supply in the economy. It is one of the most important ways of monetary control that is exercised by the central banks.

Detailed explanation-4: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations. In 2008, the Fed added paying interest on reserve balances held at Reserve Banks to its monetary policy toolkit.

Detailed explanation-5: -Open Market Operations is the simultaneous sale and purchase of government securities and treasury bills by RBI. The objective of OMO is to regulate the money supply in the economy. RBI carries out the OMO through commercial banks and does not directly deal with the public.