Consider the following statements:An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to Banks only.Repo rate is the rate at which RBI lends to its clients generally against government securities.Which of the statements given above is/are correct?
Question
Consider the following statements:An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to Banks only.Repo rate is the rate at which RBI lends to its clients generally against government securities.Which of the statements given above is/are correct?
Solution
Both statements are correct.
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Open Market Operations (OMO): This is indeed a monetary policy instrument used by central banks, such as the Reserve Bank of India (RBI). It involves buying or selling of government securities in the open market with the aim of adjusting the amount of money in the banking system. Securities are sold to contract the money supply and bought to increase it.
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Repo Rate: This is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. The lending is done against government securities, ensuring the central bank can control the money supply, inflation, and liquidity in the economy.
So, both statements are correct.
Similar Questions
Consider the following statements in context to Exchange Rate Regime in India:In India, there are two exchange rate of rupee, one is official rate and the other is market rate.RBI may intervene in the forex market via the demand and supply of rupee.Which of the statements given above is/are correct?
Which of the following is true of open market operations?Select the correct answer below:Open market operations involves the buying and selling of stocks on the New York Stock ExchangeOpen market operations target the amount of currency in the market.Open market operations involve the purchase and sale of government securities.Open market operations is the process of changing the reserve ratio in the banking system.
Open market operation is a) Buying and selling of currency by the central bank b) Buying and selling of securities by the central banks c) Buying and selling of securities by the commercial banks d) Buying and selling of foreign exchange by the central bank
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