Open Market Operations - OMO

AAA

DEFINITION of 'Open Market Operations - OMO'

The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.

INVESTOPEDIA EXPLAINS 'Open Market Operations - OMO'

Open market operations are the principal tools of monetary policy. (The discount rate and reserve requirements are also used.) The U.S. Federal Reserve's goal in using this technique is to adjust the federal funds rate - the rate at which banks borrow reserves from each other.

VIDEO

Loading the player...
RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  4. Permanent Open Market Operations ...

    When the Federal Reserve buys or sells securities outright in ...
  5. Currency In Circulation

    Currency that is physically used to conduct transactions between ...
  6. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
RELATED FAQS
  1. What are the implications of a low Federal Funds Rate?

    The federal funds rate is the interest rate at which banks borrow reserves from one another. A low federal funds rate implies ... Read Full Answer >>
  2. How does monetary policy impact the cost of debt?

    Monetary policy influences short-term interest rates, and the cost of debt is defined as the effective interest rate paid ... Read Full Answer >>
  3. How do central banks inject money into the economy?

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. These actions ... Read Full Answer >>
  4. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  5. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  6. Is credit a form of fiat money?

    To understand why credit is a form of fiat money, one must first understand what money is. At its most basic level, money ... Read Full Answer >>
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Forex Education

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  3. Personal Finance

    How The Federal Reserve Manages Money Supply

    Find out how the Fed manages bank reserves and this contributes to a stable economy.
  4. Bonds & Fixed Income

    The Fed's New Tools For Manipulating The Economy

    The economy can be volatile when left to its own devices. Find out how the Fed smoothes things out.
  5. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  6. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  7. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  8. Economics

    Gambling on Macau: Too Risky?

    Macau was once heralded as the new Las Vegas for casino investors. Is it too late?
  9. Investing

    Pockets Of Value In The Stock Market

    U.S. stocks benefited from signs the Fed’s path toward higher interest rates, as well as from continued merger-and-acquisition activity on of low rates.
  10. Economics

    When To Expect Fed Liftoff Now

    “When will the Fed raise interest rates?” That has been the question of many investors since the Fed indicated it was prepared to end its zero rate policy.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center