Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?
Correct Answer: Option A
Sterilization refers to actions taken by central banks to counter the effects of capital inflows on the domestic money supply and exchange rates.
The primary goal is to prevent currency appreciation or inflation that may arise due to these inflows.
Open Market Operations (OMO) are the most common tool used for sterilization. The RBI sells government securities (Treasury bills) to reduce the domestic component of the monetary base, effectively offsetting the increase in reserves from capital inflows.
Other theoretical methods include promoting overseas private investment or enabling foreign borrowing from the local market.
Hence, Conducting 'Open Market Operations' is considered a part of 'sterilization'.