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Open Market Operations
What does it mean?
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.
In Other Words...
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.
Related Links
The Federal Reserve (the Fed) Tutorial - Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
Related Terms
Alan Greenspan | Discount Rate | Federal Funds Rate | Federal Reserve Bank | Federal Reserve Board (FRB) | Federal Reserve Open Market Committee (FOMC) | Interest Rate | Monetary Policy | Reserve Requirements
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