ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Open Market Operations
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Required Reserve Rate Changes
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Discount Rate Changes
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Interest Rate Paid on Reserves
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Detailed explanation-1: -Open market operation (OMO) is the process by which the central bank purchases (sells) government securities (G-secs) or other financial assets from (to) banks and financial institutions. In a modern market-based financial system, central banks use OMOs as one of the tools for implementing monetary policy.
Detailed explanation-2: -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.
Detailed explanation-3: -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-4: -When the Federal Reserve buys bonds, bond prices go up, which in turn reduces interest rates. Open market purchases increase the money supply, which makes money less valuable and reduces the interest rate in the money market. OMOs involve the purchase or sale of securities, typically government bonds.
Detailed explanation-5: -Buying and selling of government securities by the central bank from or to the public and banks are known as open market operations.