| Consider the following statements: |
| 1. Sale of government securities by the RBI injects money into the market and thus expands credit. |
| 2. Open market operations don't change the total stock of government securities but change- the proportion held by the RBI, commercial and cooperative banks. Which of these statements is/are correct? |
A) Only 1
B) Only 2
C) Both 1 and 2
D) neither 1 nor 2
Correct Answer: B
Solution :
[b] OMOs are the market operations conducted by the RBI by way of sale/purchase of government securities (G-Secs) to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis. If there is excess liquidity, the RBI resorts to sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, the RBI buys securities from the market, thereby releasing liquidity into the market.
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