RBI activity considered part of 'sterilization'
Question
Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?
Options
Conducting 'Open Market Operations'
Oversight of settlement and payment systems
Debt and cash management for the Central and State Governments
Regulating the functions of Non-banking Financial Institutions
Explanation
Sterilization refers to the RBI's process of keeping the domestic money supply stable when it buys or sells foreign currency. If the RBI buys dollars (injecting rupees), it absorbs those excess rupees by selling government bonds through Open Market Operations (OMO), effectively 'sterilizing' the inflationary impact of the forex intervention.
Answer: (a).
Question details
Year
2023
Paper
GS Paper 1
Question
Q24
Subject
Economy
Sub-topic
Banking & RBI
Type
Factual single
Difficulty
Hard
Nature
Static
Source hint
NCERT Economy Cl.12 Ch.3
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