BANKING AFFAIRS

Detailed explanation-1: -Open market operation is the method that the central bank employs to modify the level of money circulating in the banking system. It does this by selling or buying back government securities.

Detailed explanation-2: -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-3: -Gilt-edged securities refer to high-grade bonds that some national governments and private organizations issue in an effort to generate revenue. Also known as gilts, these securities were originally issued by the Bank of England.

Detailed explanation-4: -Open market operations (OMO) of RBI comprise outright sale and purchase of securities, Repo and Reverse Repo operations through LAF. While the outright OMO are directed at influencing enduring liquidity, the LAF OMO operations target the temporary liquidity in the system.

Detailed explanation-5: -Conclusion. Open market operations are the central bank’s monetary policy. For example, policymakers manipulate money circulation for increasing employment, GDP, price stability by using tools such as interest rates, reserves, bonds, etc.