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Open-market operation

Open-market operation Definition

the purchase and sale of government securities in the open market by the federal reserve in order to affect the domestic money supply, credit conditions and interest rates. often has a significant impact on security prices.


Additional meaning of Open-market operation:

open market operations are the means by which central banks control the liquidity of the national currency. this management of liquidity is used to achieve certain monetary targets. it is the basis for monetary policy.

the process entails the use of newly minted national currency to buy in the open market (typically other banks) some financial asset (typically gold, foreign currency or government bonds). alternatively it may involve the selling in the open market of a financial asset in order to redeem back national currency.

these operations effect the liquidity of the national currency. they increase or decrease the amount of national currency that is in circulation. the currency component of the money supply is known as m0.


RELATED CATEGORIES
Banking
Economy




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