Q115
Indian EconomyMoney, Banking & Financial Institutions
When the Reserve Bank of India conducts open market sale of securities, the cash reserves of the commercial banks
- a.increase.
- b.decrease.
- c.remain constant.
- d.first increase and then fall.
Answer: (B) decrease.
When the RBI sells securities in the open market, banks and the public pay for them out of bank balances, so commercial banks' cash reserves fall and their lending capacity shrinks. An open market purchase would have the opposite effect.