Ace the AFP Exam 2025 – Boost Your Financial Wizardry!

Question: 1 / 400

Which financial instruments are commonly used in open market operations?

Corporate bonds

Government securities

Open market operations primarily involve the buying and selling of government securities, such as Treasury bills, notes, and bonds. These transactions are crucial for central banks in managing the money supply and influencing interest rates in the economy. When a central bank buys government securities, it injects liquidity into the banking system, promoting lending and spending. Conversely, selling these securities withdraws liquidity, aiming to cool down an overheated economy or curb inflation.

Government securities are considered safe assets with low credit risk, making them the preferred choice for these operations. Other instruments like corporate bonds, real estate mortgages, and equity shares are not typically involved in open market operations because they do not provide the same level of safety, liquidity, or direct influence on the monetary policy objectives of the central banks.

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Real estate mortgages

Equity shares

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