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

1. Sale or purchase of Govt. securities: RBI sells securities to withdraw money from the banking system and tighten credit, or buys them back to add money and ease credit — exactly what OMO means.
2. Issuance of different types of bonds: this is a government borrowing exercise, unrelated to the OMO mechanism.
3. Auction of gold: not a recognised OMO activity.
4. None of the above: incorrect since a valid definition is already listed.

The correct answer is Sale or purchase of Govt. securities.