Current Affairs Questions

Explanation :

• Open Market Operations (OMO)is the sale and purchase of government securities and treasury bills by the central bank of the country.
• The objective of OMO is to regulate the money supply in the economy.
• When the central bank wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
• It carries out the OMO through commercial banks and does not directly deal with the public.
• OMO is one of the tools that central banks use to smoothen the liquidity conditions throughout the year and minimise its impact on the interest rate and inflation rate levels.

Explanation :

• Shadow Banking refers to the practice of banking like activities performed by non-banking finance companies, which are not subject to strict regulation. However, these institutions function as intermediaries between the investors and the borrowers, providing credit and generating liquidity in the system.
• It includes money market funds, private equity funds, hedge funds, securitisation, securities lenders, and structured investment vehicles.
• The term “shadow bank” was coined by economist Paul McCulley in a 2007 speech at the annual financial symposium hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming.
• Unlike traditional banks, shadow banks do not take deposits. Instead, they rely on short-termfunding provided either by asset-backed commercial paper or by the repo market, in which borrowers offer collateral as security against a cash loan and then sell the security to a lender and agree to repurchase it at an agreed time in the future for an agreed price.