Open Market Operations (OMO) involve the buying and selling of:

Open Market Operations (OMO) is a monetary policy tool used by central banks to control the money supply in an economy. It involves the buying and selling of government securities, such as treasury bills and bonds, in the open market. The correct answer to the question is option 'A' - government securities.

Explanation:

1. Definition of Open Market Operations (OMO)

Open Market Operations (OMO) refers to the buying and selling of government securities by the central bank in the open market to influence the money supply and interest rates in an economy. It is one of the primary tools used by central banks to implement monetary policy.

2. Purpose of Open Market Operations (OMO)

The main objective of open market operations is to affect the liquidity in the banking system and influence short-term interest rates. By buying government securities, the central bank injects money into the economy, increasing the money supply and lowering interest rates. Conversely, by selling government securities, the central bank withdraws money from the economy, reducing the money supply and raising interest rates.

3. Types of Government Securities

Government securities are financial instruments issued by the government to borrow money from the public. The two main types of government securities involved in open market operations are:

- Treasury Bills: These are short-term debt instruments with maturities of less than one year. They are issued at a discount and redeemed at face value upon maturity.

- Government Bonds: These are long-term debt instruments with maturities of more than one year. They pay periodic interest to the bondholders and are redeemed at face value upon maturity.

4. Buying and Selling of Government Securities

When the central bank wants to increase the money supply and lower interest rates, it buys government securities from banks and other financial institutions. This increases the reserves of the banking system, enabling banks to lend more to businesses and individuals.

Conversely, when the central bank wants to reduce the money supply and raise interest rates, it sells government securities to banks and other financial institutions. This decreases the reserves of the banking system, limiting the amount of money available for lending.

Conclusion:

In conclusion, Open Market Operations (OMO) involve the buying and selling of government securities by the central bank in the open market. This tool is used to control the money supply and interest rates in an economy. Other options such as foreign currencies, gold and silver, and corporate bonds are not directly involved in open market operations.