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open market operation
(redirected from open-market operations)

   Also found in: Dictionary/thesaurus, Financial, Wikipedia 0.01 sec.

open market operation

Any of the purchases and sales of government securities and commercial paper by a central bank in an effort to regulate the money supply and credit conditions. Open market operations can also be used to stabilize the prices of government securities. When the central bank buys securities on the open market, it increases the reserves of commercial banks, making it possible for them to expand their loans and investments. It also increases the price of government securities, equivalent to reducing their interest rates, and decreases interest rates generally, thus encouraging investment. If the central bank sells securities, the effects are reversed. Open market operations are usually performed with short-term government securities such as treasury bills.



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Thus, expansionary monetary policy via standard open-market operations by a central bank is the first item on the checklist of what to do in a financial crisis.
Besides expanding the TAF's money-creating activity, the Fed also announced an additional $100 billion to be offered in the form of 28-day repos through the Fed's open-market operations.
[GRAPHIC OMITTED] Except for the instruments involved, the mechanics of an intervention are exactly like those of an open-market operation, and like open-market operations, foreign-exchange interventions have the potential to alter the amount of reserves in the banking system.
 
 
 
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