Multiple choice

Open market operation by a Central bank involves

  1. sale and purchase of government securities

  2. increase and decrease of discount rate

  3. changing the reserve ratio up and down

  4. raising or lowering of the margin requirements

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A Correct answer
Explanation

Open market operations (OMO) refer to the buying and selling of government securities (bonds) by the Central Bank in the open market. This is the primary tool for injecting or draining liquidity from the banking system.

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