Civil Services Prep

Prelims 2013 · Economy · Question 25

In the context of Indian economy, 'Open Market Operations' refers to

  1. Borrowing by scheduled banks from the RBI
  2. Lending by commercial banks to industry and trade
  3. Purchase and sale of government securities by the RBI
  4. None of the above

Answer

Purchase and sale of government securities by the RBI

  • (a) Borrowing by scheduled banks from the RBI refers to the repo window/MSF, not Open Market Operations. Verdict: Incorrect.
  • (b) Lending by commercial banks to industry and trade is part of normal bank credit creation, not RBI’s OMO. Verdict: Incorrect.
  • (c) Open Market Operations are the purchase and sale of government securities by the RBI to manage liquidity in the economy. Verdict: Correct.
  • (d) Since (c) is correct, this option is incorrect.

Answer: (c)

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