When Central Bank conducts a sale of securities, the cash reserve of commercial banks shall:
Under Open Market Operations (OMO), when the Central Bank sells government securities in the open market, buyers (commercial banks or their customers) pay the Central Bank,…
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When Central Bank conducts a sale of securities, the cash reserve of commercial banks shall:
Answer and explanation
Correct answer B
Under Open Market Operations (OMO), when the Central Bank sells government securities in the open market, buyers (commercial banks or their customers) pay the Central Bank, which directly drains liquidity and causes the cash reserves of commercial banks to decrease, contracting credit creation.
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UGC NET Commerce