Open Mouth Operations

Posted in Finance, Accounting and Economics Terms, Total Reads: 1028

Definition: Open Mouth Operations

It is a speculative measure on the part of Federal Reserve to influence and control interest rates, inflation and money supply. Thus we can see this as a monitory policy.

It usually takes place through the declaration by Federal Reserve in its intent to sell and purchase U.S. Treasury Funds and providing the idea about the preferred interest rate. The open market operations enable the interest rates to adjust it, and finally it takes up the target interest rate value. All this operations takes place without the Central Bank actually taking an action of selling or buying funds. It differs from open market operations by the fact that the former is just the intent, while during the latter case, original actions takes place.


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