ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Open market operation (OMO) is a term that refers to the purchase and sale of securities in the open market by the Federal Reserve (Fed). The Fed conducts open market operations to regulate the supply of money that is on reserve in U.S. banks.

Detailed explanation-2: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC).

Detailed explanation-3: -When the Fed buys securities on the open market, cash is transferred to these banks, increasing the nation’s money supply. Conversely, when the Fed sells government securities, these banks have less cash available to them – a decrease in the nation’s money supply.

Detailed explanation-4: -The Federal Reserve buys and sells government securities to control the money supply and interest rates. This activity is called open market operations.

Detailed explanation-5: -A. Sale and purchase of bonds and securities by the commercial banks to the customers.