Multiple choice

Whenever the RBI does some open market operation transactions, it actually wishes to regulate which of the following?

  1. Inflation only

  2. Liquidity in economy

  3. Borrowing powers of the banks

  4. Flow of foreign direct investment

  5. Foreign currency
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Open Market Operations (OMO) involve RBI buying or selling government securities to inject or absorb liquidity from the banking system. When RBI buys securities, it adds money (increases liquidity); when it sells, it withdraws money (decreases liquidity). While OMOs can influence inflation indirectly, their primary and direct purpose is regulating liquidity.

Keep practicing — related questions