Which of the following refers to the purchase and sale of government securities?

Key Points

• Open market operations refer to the buying and selling of government securities in the open market by a central bank.
• The primary aim of these operations is to regulate the money supply in the economy and control inflation.
• When the central bank buys securities, it injects liquidity into the banking system, which can help lower interest rates and stimulate economic activity.
• Conversely, selling securities withdraws liquidity from the market, which can help raise interest rates and curb inflation.
• Open market operations are a key tool used by central banks, such as the Federal Reserve in the United States and the Reserve Bank of India, to implement monetary policy.

Additional Information

• High powered money refers to the total currency in circulation and reserves held by banks with the central bank.
• Reserve ratio is the fraction of total deposits that a bank must hold in reserve and not lend out.
• Bank rate is the rate at which a central bank lends money to domestic banks, often used as a tool to control liquidity and inflation.
• The central bank uses these various tools to influence the economy, control inflation, and ensure financial stability.