When the central banking authority makes any kind of purchase and sales of government securities with the aim to regulate credit conditions and money supply, then such type of operation is called open-market operation (OMO). These operations take place continuously. OMO is used to bring stability to the prices of government securities. It has various positive effects.
Firstly, it increases the reserves of commercial banks in this way they may extend their investments and loans. Secondly, it tends to increase the price of government securities which in turn reduces the interest rate. Thirdly, it decreases the rate of interest which brings new business investments.
How does an open market operation change the monetary base?
What are open market operations? What open market operation can the
The Federal Reserve wants to increase the supply of reserves, so
The Federal Reserve purchases $1,000,000 of foreign
If the Federal Reserve buys dollars in the foreign exchange market but
Again, the Federal Reserve purchases $1,000,000
Explain how the Federal Reserve’s conduct of an expansionary open market operation
