Q 24. Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization?
(a) Conducting ‘Open Market Operations’
(b) Oversight of settlement and payment systems
(c) Debt and cash management for the Central and State Governments
(d) Regulating the functions of Non- banking Financial Institutions
Correct Answer: Option (a)
- Sterilization is an action taken by the Central Bank (such as RBI in India) to counterbalance the effects of foreign exchange interventions on domestic money supply and inflation. It is done to neutralize the impact of inflows or outflows of foreign exchange reserves on the domestic monetary system. Open Market Operations (OMOs) are one of the tools used by the RBI for sterilization. OMOs are the purchase or sale of government securities by the Central Bank in the open market in order to regulate the money supply in the economy. Hence, option (a) is correct.
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