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Consider the following statements:
1. Open Market Operations (OMOs) is the buying and selling of bonds issued by the Government in the open market.
2. OMOs is one of RBI's qualitative tools to minimize liquidity conditions' impact on the interest rate and inflation rate levels.
Which of the statements given above is/are correct?
  • a)
    1 only
  • b)
    2 only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
Consider the following statements:1. Open Market Operations (OMOs) is ...
  • Open Market Operations refers to buying and selling bonds issued by the Government in the open market. 
  • OMO is one of RBI's quantitative tools to smoothen the liquidity conditions through the year and minimize its impact on the interest rate and inflation rate levels. 
    • Quantitative tools control the money supply's extent by changing the Cash Reserve Ratio (CRR), or bank rate or open market operations.
    • Qualitative tools include persuasion by the Central bank to make commercial banks discourage or encourage lending, which is done through moral suasion, margin requirement, etc.
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Consider the following statements:1. Open Market Operations (OMOs) is the buying and selling of bonds issued by the Government in the open market.2. OMOs is one of RBIs qualitative tools to minimize liquidity conditions impact on the interest rate and inflation rate levels.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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