Question

Open market operations, one of the measures taken by RBI in order to control credit expansion in the economy means ?

• A. Sale or purchase of Govt. securities
• B. Issuance of different types of bonds
• C. Auction of gold
• D. None of the above

Hint:

OMO = Liquidity control mechanism by RBI. Sell securities → absorb money; Buy securities → release money.

Answer 1

The Correct Option is A

Step 1: Open Market Operations (OMO) are a monetary policy tool of the Reserve Bank of India.
Step 2: OMOs involve the sale or purchase of government securities in the open market by the RBI to regulate liquidity in the economy.
Step 3: Sale of securities = reduces liquidity; Purchase of securities = injects liquidity. \[ \boxed{\text{Sale or purchase of Govt. securities}} \]

Answer 2

Test each option against what "open market operations" actually refers to in monetary policy.

1. Option 1 (Sale or purchase of Govt. securities): This is the textbook definition of open market operations — RBI buys or sells government securities in the open market to add or withdraw liquidity, which directly changes the credit-creating capacity of banks.
2. Option 2 (Issuance of different types of bonds): Issuing new bonds is a borrowing/fiscal activity of the government, not a day-to-day RBI liquidity tool, so it does not define OMO.
3. Option 3 (Auction of gold): RBI does deal in gold reserves at times, but auctioning gold is not what open market operations means.
4. Option 4 (None of the above): Ruled out because option 1 already gives the correct definition.

Open market operations specifically mean the sale or purchase of government securities by the central bank.

So, the correct answer is Sale or purchase of Govt. securities.