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With reference to RBl's Open Market Operations (OMO), consider the following statements:
It is the sale and purchase of government securities and treasury bills by the RBI.
The RBI does not undertake OMO of securities issued by State governments.
Its objective is to regulate the money supply in the economy.
The RBI carries it out through Commercial banks and does not directly deal with the public.
Which of the statements given above are correct?
- a)1, 3 and 4 only
- b)1 and 3 only
- c)2 and 4 only
- d)1, 2, 3 and 4
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
With reference to RBl's Open Market Operations (OMO), consider the fo...
Reserve Bank of India (RBI) conducted first-ever open market operations (OMO) in State Development Loans (SDLs) and purchased Rs 10,000 crore of bonds under the scheme. The SDLs are the securities issued by States to manage their own finances. So, statement (2) is not correct. In India, Central Government issues both treasury bills and bonds or dated securities, while State Governments issue only bonds or dated securities called SDLs. SDLs are bonds issued by State governments and interest rates are usually higher than Central government securities (G-secs).
- Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country. So, statement (1) is correct.
- The objective of OMO is to regulate the money supply in the economy. When the Reserve Bank feels that there is excess liquidity in the market, it resorts to the sale of securities, thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market. So, statement (3) is correct.
- RBI carries out the OMO through Commercial banks and does not directly deal with the public. So, statement (4) is correct.
- OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimize its impact on the interest rate and inflation rate levels.
Therefore, the correct answer is a.
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With reference to RBl's Open Market Operations (OMO), consider the fo...
The correct answer is option 'A', which means statements 1, 3, and 4 are correct. Let's discuss each statement in detail.
1. It is the sale and purchase of government securities and treasury bills by the RBI.
- This statement is correct. Open Market Operations (OMO) refers to the buying and selling of government securities and treasury bills by the Reserve Bank of India (RBI). These transactions can be conducted in the open market with authorized participants such as commercial banks, primary dealers, and select financial institutions.
2. The RBI does not undertake OMO of securities issued by State governments.
- This statement is incorrect. While the primary focus of the RBI's OMO is on government securities and treasury bills issued by the central government, it can also undertake OMO for state government securities in certain cases. The RBI may conduct OMO for state government securities to provide liquidity support or to manage the yield curve.
3. Its objective is to regulate the money supply in the economy.
- This statement is correct. The main objective of the RBI's OMO is to regulate the money supply in the economy. By buying government securities from the market, the RBI injects liquidity into the system, increasing the money supply. Conversely, by selling government securities, the RBI absorbs liquidity from the system, reducing the money supply. This helps in managing inflation, interest rates, and overall economic stability.
4. The RBI carries it out through commercial banks and does not directly deal with the public.
- This statement is correct. The RBI conducts OMO operations through commercial banks and other eligible participants in the open market. These transactions are not directly conducted with the public. The RBI uses commercial banks as intermediaries to carry out the buying and selling of government securities.
In conclusion, statements 1, 3, and 4 are correct, while statement 2 is incorrect. The RBI's OMO involves the sale and purchase of government securities and treasury bills, it aims to regulate the money supply in the economy, and it is carried out through commercial banks as intermediaries.
1. It is the sale and purchase of government securities and treasury bills by the RBI.
- This statement is correct. Open Market Operations (OMO) refers to the buying and selling of government securities and treasury bills by the Reserve Bank of India (RBI). These transactions can be conducted in the open market with authorized participants such as commercial banks, primary dealers, and select financial institutions.
2. The RBI does not undertake OMO of securities issued by State governments.
- This statement is incorrect. While the primary focus of the RBI's OMO is on government securities and treasury bills issued by the central government, it can also undertake OMO for state government securities in certain cases. The RBI may conduct OMO for state government securities to provide liquidity support or to manage the yield curve.
3. Its objective is to regulate the money supply in the economy.
- This statement is correct. The main objective of the RBI's OMO is to regulate the money supply in the economy. By buying government securities from the market, the RBI injects liquidity into the system, increasing the money supply. Conversely, by selling government securities, the RBI absorbs liquidity from the system, reducing the money supply. This helps in managing inflation, interest rates, and overall economic stability.
4. The RBI carries it out through commercial banks and does not directly deal with the public.
- This statement is correct. The RBI conducts OMO operations through commercial banks and other eligible participants in the open market. These transactions are not directly conducted with the public. The RBI uses commercial banks as intermediaries to carry out the buying and selling of government securities.
In conclusion, statements 1, 3, and 4 are correct, while statement 2 is incorrect. The RBI's OMO involves the sale and purchase of government securities and treasury bills, it aims to regulate the money supply in the economy, and it is carried out through commercial banks as intermediaries.
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With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer?
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With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer?.
With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to RBl's Open Market Operations (OMO), consider the following statements: It is the sale and purchase of government securities and treasury bills by the RBI. The RBI does not undertake OMO of securities issued by State governments. Its objective is to regulate the money supply in the economy. The RBI carries it out through Commercial banks and does not directly deal with the public. Which of the statements given above are correct?a)1, 3 and 4 onlyb)1 and 3 onlyc)2 and 4 onlyd)1, 2, 3 and 4Correct answer is option 'A'. Can you explain this answer?.
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