Editing Open market (section)

== In banking ==

In [[banking]] and [[financial economics]], the '''open market''' is the term used to refer to the environment in which [[Bond (finance)|bonds]] are bought and sold between a central bank and its regulated banks.  It is not a free market process.

* To intervene in the "[[business cycle]]", a [[central bank]] may choose to go into the open market and buy or sell [[government bonds]], which is known as '''[[open market operations]]''' to increase reserves. Open Market Operations are when the central bank buys bonds from other [[bank]]s in exchange for [[cheque]]s. These local banks then cash the cheques, which allow them to take money from the central bank. This action thus decreases any credit the local banks may owe to the central bank, and also increases their [[money supply]]. This thus increases reserves.
* Stated otherwise: To intervene in the "[[business cycle]]", a [[central bank]] may choose to buy (or sell) government securities from (or to) the banks which it regulates, thereby increasing (or decreasing) the [[bank reserves|reserves]] (not deposits) of those banks; the regulated banks must comply with the buy & sell orders of the central bank.  This process is known as open market operations. For example, a central bank may command its regulated banks to sell government bonds or bills to the central bank, which pays with [[cheque]]s or electronic transactions which are cashed by these banks, moving money from the central bank to the [[bank reserves]] (not deposits) of the regulated banks.