What is meant by the term open-market operations

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1. What is meant by the term open-market operations?

2. What is a repurchase agreement and why was the action of the PBOC termed a 'reverse repurchase agreement'?

3. Assume no intervention in the money markets by the

PBOC. Use a supply and demand diagram with inter- est rates on the vertical axis (the price of money) to show how increases in interest rates can occur in times when the demand for money rises.

4. If the PBOC refrains from using open market oper- ations or scaling back the amounts it makes avail- able, what does this tell you about liquidity in the system?

5. Again, using a supply and demand diagram, explain how the open market operations of the PBOC can help to stabilize interest rates.

Reference no: EM133066219

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