With reference to Outright Open Market Operations (OMO), consider the following statements:1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.2. Outright OMO are conducted for managing overnight liquidity mismatches.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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With reference to Outright Open Market Operations (OMO), consider the following statements:

1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.

2. Outright OMO are conducted for managing overnight liquidity mismatches.

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?

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With reference to Outright Open Market Operations (OMO), consider the ...

The RBI is authorised to deal in Government securities under Section 17(8) of the Reserve Bank of India Act, 1934 through open market operations.
There are two types of open market operations: outright and repo.

Outright open market operations

They are permanent in nature: when the central bank buys these securities (thus injecting money into the system), it is without any promise to sell them later. Similarly, when the central bank sells these securities (thus withdrawing money from the system), it is without any promise to buy them later. Hence statement 1 is correct.
As a result, the injection/absorption of money is of permanent nature.

Repo open market operations

When the central bank buys the security, the agreement of purchase also has specifications about date and price of the resale of this security. This type of agreement is called a repurchase agreement or repo. The interest rate at which the money is lent in this way is called the repo rate.
Similarly, instead of an outright sale of securities the central bank may sell the securities through an agreement which has a specification about the date and price at which it will be repurchased. This type of agreement is called a reverse repurchase agreement or reverse repo. The rate at which the money is withdrawn in this manner is called the reverse repo rate.
Open market operations via Repo and Reverse Repo operations are conducted under Liquidity Adjustment Facility.
While the outright OMO are directed at influencing enduring (long term) liquidity, the LAF OMO operations target the temporary liquidity in the system. Hence, statement 2 is not correct.

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With reference to Outright Open Market Operations (OMO), consider the following statements:1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.2. Outright OMO are conducted for managing overnight liquidity mismatches.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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With reference to Outright Open Market Operations (OMO), consider the following statements:1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.2. Outright OMO are conducted for managing overnight liquidity mismatches.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? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to Outright Open Market Operations (OMO), consider the following statements:1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.2. Outright OMO are conducted for managing overnight liquidity mismatches.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? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to Outright Open Market Operations (OMO), consider the following statements:1. Outright OMO are conducted without any promise to buy/sell the securities at a later stage.2. Outright OMO are conducted for managing overnight liquidity mismatches.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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