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Banking Awareness is considered to be the high scoring section in any competitive exam. It includes two main portions, current affairs GK and static GK. In this article, we will discuss some really important Banking Awareness topics that are covered in almost all competitive exams. Also, you can download the PDF of lists of different Banking Awareness topics.
In Banking Section, the questions are asked from following topics: History of Banking, banking terms, Marketing of Banking Products, Functions of Banks, Banks and their taglines, schemes, committees related to banking, headquarters of bank, some Banking news related, apps launched by banks, new schemes etc.
In a series of sharing useful study material for upcoming banking exams. Here, we are providing Banking Awareness notes for all banking Exams (IBPS, SBI & Other Banking Exams).
Open Market Operations : Banking Awareness Study Notes
The Reserve Bank of India for the first time in India’s history conducted its own version of ‘Operation Twist’ through simultaneous purchase and sale of government securities under open market operations . The monetary policy tool called “Operation Twist” was first used by the US Federal Reserve in 1961 when the US economy was recovering from recession post the Korean War. The name comes from the Chubby Checker song and dance popular at that time in the US
What is Open Market Operations ?
Open Market Operations involve the purchase or sale of securities, such as Treasury Bills or Government bonds, by the Central Bank in order to influence the money supply. When the Bank sells (purchases) these securities to (from) a bank or an individual, money is withdrawn from (added to) the flow of money in the economy.
- Open Market Operations (OMOs) are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
- If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
- Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
- It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy
Why is it important?
In India, liquidity conditions usually tighten during the second half of the financial year (mid-October onwards). This happens because the pace of government expenditure usually slows down, even as the onset of the festival season leads to a seasonal spike in currency demand. Moreover, activities of foreign institutional investors, advance tax payments, etc. also cause an ebb and flow of liquidity.
Types of Open Market Operations
RBI employs two kinds of OMOs:
- Outright Purchase (PEMO) – this is permanent and involves the outright selling or buying of government securities.
- Repurchase Agreement (REPO) – this is short-term and are subject to repurchase.
