Open Market Operations - OMO

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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.

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RELATED FAQS
  1. How do open market operations affect the money supply of an economy?

    The open market operations conducted by the Federal Reserve affect the money supply of an economy through the buying and ... Read Full Answer >>
  2. How is money supply used in monetary policy?

    Regulating the money supply is the sole tool of the Federal Reserve's monetary policy. The Federal Reserve can affect the ... Read Full Answer >>
  3. What are some examples of operations management in healthcare?

    Open market operations are a mechanism by which monetary policy is transmitted. Monetary policy aims to find the best balance ... Read Full Answer >>
  4. How do open market operations affect the overall economy?

    Open market operations affect the overall economy in that the Federal Reserve uses open market operations to control the ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
  7. 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 >>
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