A) Buy securities from non-government holders
B) Sell securities in the open market
C) Offer commercial banks more credit in the open market
D) Openly announce to the market that it intends to expand credit
Correct Answer: C
Solution :
[c] An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells government securities to control the flow of credit and buys government securities to increase credit flow. Open market operation makes bank rate policy effective and maintains stability in government securities market.
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