Open Market Operations
Central bank buying/selling securities to manage liquidity and interest rates.
Detailed Description
Open Market Operations
What are Open Market Operations?
Open Market Operations (OMO) are the buying and selling of government securities by a central bank to regulate the money supply and influence interest rates.
What is the primary purpose of Open Market Operations?
The primary purpose is to manage liquidity in the banking system, influencing economic activity by either injecting or withdrawing money.
What are the two main types of Open Market Operations?
The two main types are expansionary, which increases the money supply, and contractionary, which decreases the money supply.
Who are the key participants in Open Market Operations?
The key participants include the central bank, commercial banks, broker-dealers, and the broader financial market.
How do Open Market Operations impact interest rates?
Expansionary OMOs lower interest rates by increasing the money supply, while contractionary OMOs raise interest rates by decreasing the money supply.