CBSE Class 12-commerce Answered
Explain the term open market operation.
Asked by Topperlearning User | 18 Apr, 2016, 10:57: AM
Expert Answer
RBI purchases the securities in the open market to add cash balances or sells the securities to withdraw cash balances from the economy. Cash balances are high powered money on the basis of which commercial banks create credit. Therefore, as cash balance increases, the flow of credit increases by multiplier effect and as cash balance decreases, the flow of credit decreases by multiplier effect.
Answered by | 18 Apr, 2016, 12:57: PM
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