Q. With reference to Open Market Operations (OMOs), consider the following statements:
1.OMOs involve the sale or purchase of government securities with the objective of controlling rupee liquidity in the market.
2.The effectiveness of OMOs as a monetary policy tool is limited by the availability of government securities with the RBI.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

Explanation:

  • OMOs are used by the RBI to modulate rupee liquidity by buying or selling government securities.
  • The stock of G-Secs with the RBI limits its ability to conduct OMOs freely.

Source: Indian Economy (Dr. Ramesh Singh) 

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